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Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway.
And I'm Joe. Why isn't thal Joe.
We're still at Jackson Hole. Yes, by the time this episode comes out, the dust will have settled. That's the entire event, and we will have gotten well. We already had the speech from FED chair Jerome pow Right, and this afternoon as we're recording, we're seeing market surging. Everyone, it seems, has interpreted this as pretty dubbish.
Yeah, that's right, and along a Bloomberg had an interesting piece if it wasn't as dubvish as people think, but it felt duvish in the context of, you know, a recent chat with us in Goolsby. Recent he was concerned about he's starting to look at that inflation date a little bit more fell division the context of our recent episode with Kansas City Fed President Jeffrey Schmid, he too was talking about, how, you know, things are maybe still looking a little warmon could.
Be talking about if you look at the Taylor rule, you know, you could argue maybe rates should be a little higher.
Anyway, I think we should continue on our survey of as many FED presidents as we can.
All right, well, we do have the perfect guests. On that note, a friend of the pod, Richmond FED President Tom Barkin. Welcome back. It's good to see you.
Yeah, good to see you guys too.
Thanks so much for doing this, taking time out of your you know, hiking and conferencing schedule, so we appreciate it. Why don't we just start with the obvious question, which is I guess you talked earlier this week that the balance between employment risks and inflation risks is really unclear at the moment. Pal seemed to air on the side of the labor market, right, he kind of chose to prioritize that. Do you think that's the right move?
Well, as you said, I've been saying, I'm confused about everything. I'm confused about labor market and the inflation side, and I think there's lots of people who come up with different views of how to weigh the risks. Here's the interesting thing. We've been hearing from businesses for a year and a half that they haven't been hiring. We've been seeing in the number that they haven't been hiring. They
also haven't been laying people off. And when we get into the job's numbers that kept coming in at one hundred and thirty thousand a month or one hundred and twenty thousand a month, that seems strange, but it was good news. I mean, there's nothing wrong with a lot of jobs. And so what we saw last month was a different jobs report with a job's revision that now sort of says, hey, we're growing at thirty five thousand
jobs a month. That actually makes a little more intuitive sense to me given what I'm hearing in the marketplace. If you're not hiring, then where the new hires coming from. And by the way, we'll get a revision a QCW in September that probably will take those numbers down again. And so if you're dealing with one hundred and thirty thousand job market, that's a very different level of confidence than if you're dealing with a thirty five thousand or even maybe even a zero job growth market. And I
think that's where the concern comes from. What holds you back from being overly concerned is the unemployment rate, which still is at four point two percent, perfectly really good unemployment rate. You know, at any time in any cycle, and so you know, how much how lucky do you feel, Deale feel? Did you feel in the jobs growth? How much do you feel in the unemployment rate? The gap between the two obviously is driven by we're not having net migration, you know, into the country the way that
we used to. You could call that two million a year. My generation, the baby boomer baby boomers are aging out of the workforce. I'm not aging, nor am I out of the workforce, but my generation is. And that's maybe a million three people sixty five and older increase out of the workforce over the last three years per year. And then you know, this temporary protected status thing takes some more people out of the workforce. And so it's possible that you know, we're seeing your job growth and
that's going to keep the unemployment rate steady. But you know, there's nothing wrong with being nervous about that. I think you also have to be us on the inflation side, and we weren't at two percent before all the tariff talk. All the tariff stuff's coming in. It's not hitting inflation nearly as much as some people thought, but people are
still passing it on. You would have seen Walmart's earning support yesterday where they talked about it, or home Depot or you know, people are talking about No.
Walmart basically said it's coming.
It's coming now. It doesn't have to be as severe as you know people like to think. And we can talk about that if you want, but it's coming. So I like to say my tearo policy is really easy. Three quarters of the time. You know, when inflation's high and unemployment's low, raise rates, and when you have the opposite situation, lower rates. And you know, if inflation's low and unemployment's slow, you can spend a few more days
at Jackson Hole. But if you're going to have risk on the inflation side and risk on the employment side, that's what it gets hard.
Talk to us about your interpretation of Powell speech, because it does seem like actually there is no consensus on how quote Dovish it was the market surged. But when you heard it or when you read it, I don't know when you saw it. Whenever you when it, maybe do you get in advance, so you were you read it at the same time as we did, Like what was your read on it?
So I think you guys are all incredibly talented and much more talent than I am, but at interpreting speeches, so uh.
Believe it or not.
I actually gave a speech last week and one of the FED commentators went through my last paragraph and compared it to my last paragraph before and said, see, Barkin has changed in these days. And I'm like, huh, that was really well done. I you know, I was even sophistical commentator.
Was correct in the way that you actually yourself hadn't thought about.
So so when you guys read these speeches, I mean, the commas matter, the sentences matter.
That's really our call for what it's worth. That's our colleagues, y commas. But let's give it.
Let's hear you and I And I'm sure Jay is very sophisticated in his team, so I'm sure they're also thinking about this. So I'm not saying people get real accidents. But when I read it, and when I heard it, I actually heard it live for the first time, so I didn't read it before it came out. It seemed like a perfectly down the middle speech to me. If you had asked me what the markets would have and I guess I would have imagined that they'd read it as modestly dubbish. It seems like I read it as
more dubbish than I heard it. But what do I know. I mean, I'm just listened to the speech like everybody else.
Well, I mean this kind of begs the question. But how could easily have just said, you know, we're data dependent and we're going to wait for the next CPI number, the next payrolls number. Instead he chose to really emphasize the labor side of the dual mandate. Why why is that?
I mean you'd have to ask, you know, when he comes on the show.
Ye, I know you'll have a lot of questions, tell him he should come on the show.
I will say one thing that's odd about Jackson Hole every year is it's the period worry of the longest break between meeting right right and this time, not only do we have a long break between meetings, but you know, the day after or two days after his press conference, we got these big revisions on the job report. So I don't know, maybe you could imagine there was a trying to mark to market the from the press conference to hear I don't know. I mean, it's a he knows what he does.
Something that came up in our conversation with Jeff Schmid was they said that, and I'm curious how there's sort of jobs with what you've been hearing from businesses. You know, when we talked to Mary Daily and Alaska a few weeks ago, she said, you know, the revisions made sense to me. Actually, look what you're saying, because actually this is fitting with the anecdotal commentary that I've been hearing, and intuitively, right post Liberation Day, lots of anxiety, uncertainty,
it makes sense there'd be a hiring slowdown. However, something that Casey Fed President Schmid said was, yes, it fits, but well, the uncertainty is easing now. Tariffs are not as uncertain as they were in the middle of April by any stretch. Even though there's new headlines almost every day. There's nowhere near as much uncertainty. And then maybe that was the cycle low for the year, that sort of April May June July period. Does that seem plausible to you based on what you're seeing out there.
Yeah, So I've been describing that as driving in the fog, and you know, I've been saying that when you're driving in the fog, it's hard to put your foot on the breath on the gas because you don't know what's around the next curve. And you don't want to put your foot in the brakes either because you don't know what someone behind you is going to run into you, so you pull over and put on the hazards. That's a money analogy I've been using for a few months.
But but what I've been saying, you know, the last month is I think the fog is lifting, and I do think we've got you know what's happening on the immigration side, you know what's happening on the deregulation side, different sectors in different you have different points of view on that. We have a tax bill, so you know what that looks like, and people have a you know at least what the boundaries look like on tarifts. Now. I don't think they're ever going to be once set
done and will know the rules for forever. I think it's a tool that is going to surface again and again. But I think people sort of know what that is. And so when I'm talking to businesses, it feels like it's shifting now that you know, I'm going to now torture the analogy because they think the road's bumpy, right, and so I still hear a lot of not hiring, not firing. I'm going to, you know, be a little cautious with my costs. I'm going to do it through attrition,
not through layoffs. I still hear that. I've heard a few stories of leaning into investing, particularly supported by some of the depreciation stuff. You know, I've been waiting for this tax heading to pass. That have sertainty, but I wouldn't say not at scale, you know, modest amounts of it.
The one place where you might be seeing this sentiment change is on the consumer side, and I've been hearing from the retailers I'm talking to and from the manufacturers I've talked to, of a lift in consumer spending starting in you know, end of June into July. If you look at the credit card data, you'll see a big increase in July, which is continued the first two weeks
of August. It would make sense that a bunch of consumers who by the way, still have jobs, real wages are still up as inflation comes down, and the markets are obviously healthy, both asset valuations and houses or stock market all very healthy, that they might have taken a step back in the context of all the news in April and May, and maybe now they're coming back in so that that's the one place I'm starting to see. I'm moving. I'm very attentive. You know, we'll get the
PC next week, very temped to what we're seeing. But you could imagine, you know, temporary air pocket is consumers sort of pulled back, worried, and you see this in the consumer sentiment data, that inflation was going to hit huge numbers and all of a sudden, you know, people are going to be unemployed and they were going to have issues. Now they're not seeing it. It's possible.
Do you think that we're maybe getting a bit of a reacceleration in the economy at this point, because you look at retail sales they were very strong, as you point out, You look at the city Economic Surprise Index that's been ticking up, some of the regional surveys are starting to improve a little bit. Do you see that reacceleration impetus?
You know, it's possible. Like I said, I sort of see the energy on the consumer side. We'll see how long it lasts, you know, I think you can call a reacceleration when you get there. I definitely am not talking to businesses who are talking about blowing out earnings. I don't. I don't hear one of those kind of accelerations. So I don't hear frothiness yet. But I am hearing some very positive vibes on the consumer spending side, which I'm pleased to hear.
If inflation is warm, and maybe if there's upside risks still to inflation, why could there be more to it than just yeah, terriff, sorry, maybe, but like, could there be something more going on? And perhaps that consumer strength pretty large deficit still even with the revenue that's coming in from tariffs. Maybe someone like the it's been I don't know, what do you think is the story on inflation? How much is tariffs and how much is other stuff?
Well, so I just think it takes a long time to get inflation back to two percent. If you go back and look at the Vulgar years, and of course he did stuff to the economy that was much more aggressive than what we did, and he of course he had inflation that was much more ingrained and didn't have an inflation target, but he took rates up a lot inflation came down a lot, but it didn't get to
two percent. It was four, oh yeah, And you know, it sort of eked its way down from four to three and a half to three to two.
And a half, and then throughout the eighties and nineties exactly.
For twenty years until it sort of hit two and sort of starts sticking around too. So I give you that just for perspective, and you know, again from my experience, I'll tell you why that happens, which is people don't just immediately go back to the old number. You've got some amount of care to do wages and prices people who didn't raise it. People's expectations, I think are very
significantly triggered by actual inflation. And so my old job, we had to raise prices every year, and we sort of thought about it, and a lot of times we raise price based on last year's inflation, and so it just there's some stickiness to it. And so what we've seen is very encouraging on the inflation numbers. They've gone from you know, seven at their peak down to you know, somewhere in the high twos. Maybe it'll tick up to the three now. And so I think that's one piece
of it. Actual just take it's sticky. It takes a while. And then the second piece of it is, I do think you've got this tariff concern in there, and that people are passing on costs, and then people who don't even have the costs are using this as a cover to pass on costs.
So just real quickly. Then, if there's all these factors, et cetera, why is there conversation about cutting rates, Or if there is conversation about cutting rates, how seriously should the should people be take those two percent commitment?
Well, so there's calibration going on. So you've got unemployment that's low but maybe training. You've got inflation that's been coming down and maybe ticked up but maybe for one time reason. And you've got a neutral rate that is by all accounts lower than where we are, but lots of debate about is it just a little bit lower
or is it significantly lower? And so I think those three things go together, and people just ask it, do you recalibrate to a different number in the context of this, or are we well positioned where we are?
This discussion actually reminds me, what's your story for why inflation did come down in the post pandemic period. Is it the sort of immaculate disinflation explanation where the supply chain pressure has just started dissipating, or did the Fed's actions actually have a kind of sledgehammer effect here.
I think it's in all of the above. I mean, if the FED doesn't act when people expect us to act, then I think that sort of unwinds expectations the way. That's not very helpful. On the other hand, you can't ignore that a lot of the supply constraints that we're driving prices up, commodity prices, ships backed up in harbor's chips, no in cars, people not at work. Those things also amilorated. We also had a really big immigration number for about
two years. That meant, you know, the supply side jobs got filled a lot faster. It definitely released the pressure and a lot of things so supply help. Hopefully, the FED did its part and the combination of things brought it down.
When we were in Alaska, we learned that there is a major furniture expo every year in your district in North Carolina. Also North Carolina. It's like, I think if people think of like regions that have lost from trade or regions that got hit really hard by free trade. I'm not even sure if it's true, but certainly that is the perception. It's actually it's your district.
Well, this is one thing we learned by traveling with Tom and going on some of his trips to talk to local businesses. There is a sense that manufacturing in North Carolina has been hollowed out.
Absolutely, it's a very short sense. But there's also cities in North Carolina that are some of the most dynamic in the entire country, especially over the last couple of decades. But I'm just curious right now, like tariffs in your district, what are you saying.
So, no question, Historically, the textile industries, the furniture industries got hit very hard. If you look at the Carolinas though, and you took it the last twenty five years, you'd say there's also been a lot of foreign based manufacturers that have put manufacturing sites. I'm thinking of Greenville, South Carolina, Spartanburg where I was last week, where you've got BMW and big auto manufacturers you know, and their whole supply
chains coming into town. You know what we hear, right now is it's very different by sector you're in, and it's very different by your position in that sector. So there are a lot of people who manufacture in South and South and North Carolina, but they source abroad and they're very worried about their costs. Think of the big
auto manufacturers. There's a lot of people who manufacture in North Carolina and they're one hundred percent American made, and they think this is the greatest thing in the world because they'll get protection for their sectors. Or the people on the other side who've been you know, putting low costs, they're going to get So it's very very dependent.
On where you say, well, speaking of you know, specific sectors potentially benefiting. There are loads of tariff headlines still coming in, but one of them that caught my eye was Trump saying that he was going to start a furniture tariff investigation with a view to setting tariffs on furniture imports into the US, specifically to help North Carolina. What's your immediate reaction when you see a headline like that.
Well, we've been seeing a lot of headlines, you know, Yeah, I know on the tariffs thing. So first thing I downed is I tried not to serve headlines too much. We'll see what tariffs get applied on what industries, with what duration and what products, and that's what a lot of the manufacturers I talked to also do. I'm sure the people who manufacture furniture and North Calina would be
very supportive. There aren't actually all that many. A lot of jobs have been lost, and I think if people start to consider bringing jobs back, the thing you hear about, you know, over and over and over again, is just availability of workforce and the cost of workforce. You know, the jobs that I think are most likely to come back are ones that are the least dependent on workforce, or have the highest skilled workforce, or have high paid workforce. And a lot of these jobs have gone to place
with very low cost workforces. And I don't know the level of tariff that one would need to get to to, you know, bring those jobs back, but it's a pretty significant number. The other thing that's really not talked about much that I just think is interesting. I was in Hickory, which is a factory town. I talked to a lot of furniture manufacturers there, and they're looking for workers. This is during the COVID and they were, you know, having
a very strong demand cycle. But I went to community college. I talked to a bunch of workers there and I said, well, you guys trained to get in the furniture industry, and several of them told me, you know, my dad was in there and got laid off, and so we're not going there. You know, the thought that people are waiting to go back into the jobs to build the matters
a lot too. And so as we bring jobs back in the country, which would be great, and I hope we do, making sure there's stable jobs and their jobs that are going to be around for a generation is very important, I think in terms of getting workers into the jobs.
We are recording this today that Chairman Powell gave his final speech as FED chair at Jackson Hole. It was a policy speech and he did not talk about FED independence and the attacks on FED independence that are coming from the White House and so forth, the political pressure that the FED has been coming under. When you think about inflation, maybe not in the short term, maybe not you know, the latest PPI reading or whatever, but when you think about like the long term, like the ability
of the FED to maintain that two percent inflation. Do you think about, like, well, will the US political system have the sort of stomach to preserve a FED as an independent agentic force in the economy.
Well, so we've all relearned something in the last five years that we didn't know we need to relearn, which was how much we hate inflation. And inflation, you know, it feels unfair. You get a raise and then you know, the money gets spent somewhere else. It creates uncertainty, and frankly, it's just exhausting. It's exhausting to deal with people who are trying to raise your prices or to shop around
for better prices, or deal with you know, vendors. And so, if there's one thing I think the American people have aligned on over the last five years, it's just how much we hate inflation. And you know, there's been a lot of work done in a lot of countries in terms of what's the best way to get inflation on control? And an independent central bank is the answer to that question. The research is very powerful.
Do you worry that like the that the that over the medium term, that the sort of political system that has allowed for an entity like the FED to exist and operate outside of the electoral cycle is understressed.
I hope and I expect that this country is going to recognize that independent central bank is the best way to get into control the thing which we hate the most.
Just on the people hate inflation point, which I think is a very salient idea. You've been very vocal on the idea of like companies having learned the inflation playbook, right, like they tested price elasticity during the last round of high inflation, and you know, maybe maybe there's more of an impulse this time around to raise prices to offset either higher input costs or higher tariff costs. Are you
still sort of on the inflationary impulse side. Do you think that residual experience still matters.
I definitely think the residual experience matters. When I talk to companies about the tariffs that hit them. The first thing here is going to pass it on to my customers. But I also think this residual experience matters on the customer side. I guess I just remind everybody that this isn't twenty twenty two. In twenty twenty two, a bunch of supply costs hit a bunch of companies that passed
it on and the people who received them. You and I we hadn't spent money for a year and a half with COVID, We'd gotten stimulus payments, our assets were quite frothy and highly valued. We were ready for revenge spending spent. And that's twenty twenty two. We're not in twenty twenty two, when, by the way, we also had accommodateive monetary policy. We're in twenty twenty five. Here we have restrictive monetary policy. And in addition, you have consumers
who are already trading down. And so I've said earlier, they've got money, but they're not dying to spend it. And what you hear is normal price retailer to value, retailer, beef to chicken, vacationist staycation, that's what you're hearing. And people in private label is growing, and so I think those customers are not going to accept those price increases the same way they have. And it's sort of Milton friedmany a little bit. If there's not more money in
the system, how are you going to get inflation? And you could argue there's some money in the system and you'll get some inflation. I believe that, but I don't think you're going to get anywhere near the kind of stuff that people imagine, because this company that's now learned how to pass on prices is going to meet a consumer who's ready to resist it.
You mentioned restrictiveness just then, and this is something that Pal also said in the speech today. He said, you know, rates are still restrictive, I think he said, albeit modestly so. But when I look at stocks at all time highs and credit spreads, you know, basically thirty year lows financial conditions, things don't seem all that restrictive. If you look specifically at the market. How is the FED sort of coming to the conclusion about the relation of benchmark rates here or the.
Character As you can tell from the SEP. Different people have different models. Of course, the model that we use in Richmond, you know, has a lot to do with the impact of rates on the economy, and so you know, you can see what rates are and you can lag it and look at you later and see what the impact is. One thing I like to look at is nominal consumption. Nominal consumption was quite elevated during the pandemic. We raised rates and it came down still at a
decent level. It's been sort of five and a half percent until the last couple of months, but it sort of seems to have come off that in the last month of two. We'll see what the more recent data is. But that nominal consumption is a great way to look at it because it just says what's happening rates to what people are doing in the economy. I do agree there are lots of other factors that affect dynamis in the economy, and if the market's frothy, a thing we
don't control, that's also part of it. But in the part we control, I think you can see it by its works.
I think I just have one more question for you, And I just feel like, maybe because you talk to businesses so much, maybe you have some fresh insight on this. Do you hear much about electricity prices in your conversations these days? Because I feel like there's starting to be in the news and the strain on the grid, and but for whatever reason, how is that you're hearing much about that?
A lot of concern about electricity availability? Okay, you know, are we going to have an electricity to power all the AI and all the data centers are going up. You know there are states, you know, Virginia's one where data centers are quite right, and so you do hear a little bit of public concern about what's this all going to mean? But just a reminder that electricity prices tend to lag significantly. They got to go through rate processes. Every state is different, and so you know, I'm not
sure that's hitting the consumer public. I do hear lots of I'll just call it local infrastructure funding HOSS being passed on to consumers and consumers making trade offs in that context. So you know, there was a big water increase in the town I was in in Maryland a month ago, and a lot of conversations about people not paying their water bill. Because so you do hear it more broadly, but I wouldn't say that the price is yet hit.
Okay, So I'm going to ask a sort of on the ground color question. But when you think about this Jackson Hole and you think about maybe last year is Jackson Hole in twenty twenty four, can you compare and contrast the vibes? How are they different?
This is my eighth one. Two of them were virtual. They're not nearly as good when they're virtual no fish, it's a nice picture.
I'd say.
In general, the vibe is pretty much the same every time. I mean, I really like them because there's a they turn over the population a little, you know, and so they are new.
There's new guests every time.
The academics, I haven't met new leaders. I haven't met, so that's kind of fun for me, and I get that, but I'm not sure the vibe changes all that much. It's a it's a real privilege to be invited to like this, and I enjoy it. I don't spend a lot of time thinking about the vibe. The vibes exactly all.
Right, Tom Barkin, thank you so much for coming back on all thoughts.
Really appreciate it, and I always appreciate being with you things.
Thank you so much.
Joe. You know, I have some furniture from North Carolina. It's really good quality.
Maybe maybe in North Carolina, just imported through the port or the shows.
No, actually made in North Carolina. And I know that because it's vintage, so it was probably back when the furniture industry was a little bit bigger there.
I do think like did North Carolina. I mean, it's a long standing debate. Some of the biggest boom cities of the twenty and twenty tens were like you know, Durham and all those places, et cetera. You know, it's still like going back to Charlotte. Charlotte was huge booms, all the bank stuff there. Like you think about the last twenty five years, this is the area that we think is like most quote hollowed out, etc. It's also like one of the fastest growing. Here is the whole
is it complete? Even the past is complicated. Hindsight is not twenty twenty.
Yeah, and I think complication is sort of Complication and uncertainty are the big buzzwords of this conference. Clearly, like we hear it over and over again that there are risks on both the employment side of the mandate and the price side of the mandate, and central bankers basically have to make like a tough choice over which one they're going to concentrate on. I did think it was interesting that Tom mentioned that he read Pal's speech is more down the middle than perhaps the market did. No.
I thought that was interesting too. I like the fog analogy that you actually don't want to break too much of the fawity fog either because the car behind you might not react in time. That that was really good. I also liked the part about how three quarters of the time vigg as central banker is really easy because either you hike or you cut or you go on a hike in Wildman the at the fourth time, like the fear of stagflation, Yeah, right, that's what that's what
that forth. So here's like, this is that fourth time? Now, how persistent will it be with it? But the basic like what we're talking about in all these conversations, what we're talking about is this building anxiety about stagflation.
It's stagflation combined with really difficult to predict timelines for exactly when it materializes. Right, Like that also seems to be a complicating factor. Okay, well on that note, shall we leave it there.
Let's leave it there.
This has been another episode of the aud Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway and I'm Jill Wassenthal.
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