Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.
Speaker 3: I'm Tracy Allaway and I'm Joe Wisenthal.
Speaker 2: Joe. We are here at Jackson Hole. We made it.
Speaker 3: I love it here.
Speaker 2: So this is the annual Economic Symposium held by the
Speaker 2: Kansas City FED, and it's sort of a gathering of
Speaker 2: central bankers and policy makers. And the idea is that
Speaker 2: a it's a chance for them to talk about the
Speaker 2: sort of pressing issues facing the global economy and maybe
Speaker 2: their individual economies. It's a chance to go over academic
Speaker 2: literature and talk about ideas. It's also a chance potentially
Speaker 2: to guide monetary policy, at least for the FED.
Speaker 3: Right, so this is what people generally know. The FED
Speaker 3: chair gives a speech, but there's also a bunch of
Speaker 3: you know, like in theory and I suppose to practice,
Speaker 3: but in theory it helps policymakers central bankers around the
Speaker 3: world make better decisions in real time if they're up
Speaker 3: on the theories, or if they're up on what's happening
Speaker 3: in academic work and what research is being done in economics.
Speaker 3: And so, for example, the theme of this year is
Speaker 3: monetary policy transmission, which is another way of saying, how
Speaker 3: does monetary policy actually affect the real economy? Kind of
Speaker 3: a big topic, yeah, but there are a lot of
Speaker 3: questions about that. And you know how the FED is, say,
Speaker 3: going to proceed with the rate cut cycle. Well, you
Speaker 3: would want to know what rate cuts actually do before
Speaker 3: you know that might guide you. So it makes sense
Speaker 3: to sort of convene everyone here talk about the latest
Speaker 3: research and what monetary policy actually does, and then maybe
Speaker 3: that can make for better short term decisions.
Speaker 2: Absolutely, and it sort of begs the question, I guess,
Speaker 2: what is it like to be a policy maker at
Speaker 2: Jackson Hole? So you and I are coming at it
Speaker 2: from an outsider's perspective, obviously, And I should just say
Speaker 2: for people who don't know, there's only a handful of
Speaker 2: journalists basically who, yeah, who are allowed in the room
Speaker 2: where all these discussions happen and where Powell's speech is
Speaker 2: actually given. Everyone else is sort of milling around outside,
Speaker 2: learning by osmosis what's being discussed in the room. And
Speaker 2: so I'm really curious what Jackson Hole is like for
Speaker 2: an actual central banker Totally.
Speaker 3: I have to say, like when I go to conferences,
Speaker 3: you know, I'm like everyone else. I just want to
Speaker 3: hang out in the lobby and chit chat with people
Speaker 3: I don't actually like wanting to hear panels and stuff.
Speaker 3: So I sort of like that from me and you perspective.
Speaker 3: We don't have to feel guilty about not going into
Speaker 3: the panels and like you're saying, because we aren't even
Speaker 3: given the option in the first place, So we can
Speaker 3: just hang out in the lobby and the lodge and
Speaker 3: now feel like we're shirking our job.
Speaker 2: Yeah, we physically can't try to gather information like normal
Speaker 2: journalists because this is service will stop us from entering
Speaker 2: the special room.
Speaker 3: That's right.
Speaker 2: Okay, Well, I'm very happy to say that we do,
Speaker 2: in fact have the perfect guest, someone who's been on
Speaker 2: the podcast before. We are going to be speaking with
Speaker 2: the president of the Richmond Fed, mister Tom Barkin, and
Speaker 2: he is going to tell us what it is like
Speaker 2: to actually be here at Jackson Hole as a FED member.
Speaker 3: And it's great because for people who remember the last
Speaker 3: time we talked to Tom Barkin, we went on a
Speaker 3: trip with him to North Carolina, and so it's essentially
Speaker 3: the two sides of being a regional FED president the job, right,
Speaker 3: So one part of the job is to understand what's
Speaker 3: going on in your district, and Tom does that in
Speaker 3: various ways. But then the other part is essentially we're
Speaker 3: not in DC, but the quote DC part of the
Speaker 3: job where then you like take the information that you
Speaker 3: learn and talk to other people and you know, stay
Speaker 3: up todate on the latest literature and all this, and
Speaker 3: so we're going to learn what it is that they
Speaker 3: really do here.
Speaker 2: Okay, let's do it. Tom, welcome back to the show.
Speaker 4: It's great to see you guys again.
Speaker 2: It's nice to see you in as lovely a setting
Speaker 2: as Jackson Hole, Wyoming.
Speaker 3: Although mon Airy was great too.
Speaker 2: Oh yeah, yes, absolutely, I'm thrilled just to be out
Speaker 2: of New York City in general. But okay, let's talk
Speaker 2: about Jackson Hole. How many of these have you actually
Speaker 2: been to at this point?
Speaker 4: That's my seventh.
Speaker 2: Oh wow, yes, And in that time period, have they
Speaker 2: always followed a similar format?
Speaker 4: Yes, the format has always been the same. Other than
Speaker 4: I say, I've been to seven during COVID. I know
Speaker 4: we canceled one in twenty twenty, so, but even that
Speaker 4: one kept the same format. It's an academic conference and
Speaker 4: so the chairl give a speech, they give a couple
Speaker 4: of papers, then you have dinner, then they wake up
Speaker 4: the next morning, they give a couple of papers. Another
Speaker 4: central banker give a speech, and then you move on.
Speaker 3: I know that like someone gives a paper that they've
Speaker 3: worked on, and that there are some official discustants who
Speaker 3: may have some respondents, and then people ask questions what
Speaker 3: do you do? Do you do you pipe in with
Speaker 3: any questions?
Speaker 4: Are you so?
Speaker 3: Do you challenge them and them on the spot.
Speaker 4: There's a lot of people out here who try to
Speaker 4: do that. I've got a different agenda. They quite intentionally
Speaker 4: do these around monetary policy topics. So today they one
Speaker 4: of the papers was about the relation between inflation and
Speaker 4: unemployment and whether that's changed. And I'm looking for good
Speaker 4: ideas for policy. Yeah, so I'm looking for people to
Speaker 4: put something on the table that I can say, hey,
Speaker 4: now that's an interesting idea that supports something that I've
Speaker 4: been thinking, or that's a different way of looking at something.
Speaker 4: So I'm a customer of this, and there's a lot
Speaker 4: of people who it's just like college. There's a lot
Speaker 4: of people who sit in the front row that's probably
Speaker 4: not me.
Speaker 2: The other thing I wanted to ask is the materials
Speaker 2: for the actual conference, so we don't see them until
Speaker 2: they're sort of like drip fed to the public. Do
Speaker 2: you get them in advance and you can read them
Speaker 2: and think about them before you actually arrived.
Speaker 4: Absolutely, I got them about two weeks ago, you know,
Speaker 4: probably four sixty page papers, appendices, charts, regressions, all that stuff.
Speaker 4: I read through them, and my team also reads through them,
Speaker 4: and we actually do a whole briefing session the week
Speaker 4: before where my economists will say, I really liked this paper.
Speaker 4: Here's something that you know, somebody needs to ask this
Speaker 4: question because I think about it differently, and so I'm
Speaker 4: sort of zoned into the papers before they come. Academic
Speaker 4: conferences have this other tradition, though the discussant, and so
Speaker 4: someone will give a paper and then somebody else has
Speaker 4: done research in the exact same field will give their
Speaker 4: view on the exact same topic. It's almost never the same,
Speaker 4: so you do get a little bit of this back
Speaker 4: and forth debate, which is very helpful if you're trying
Speaker 4: to think, as I do, about how to make a
Speaker 4: make sense of policy.
Speaker 3: This is a question that many of our listeners have
Speaker 3: so I'm relaying it to you. You know, there's the
Speaker 3: bar here, there's a restaurant, there's hiking. What do you
Speaker 3: do when you're not in the room and when you're, say,
Speaker 3: on a hike with some other central banker or maybe
Speaker 3: someone you know, maybe from a different country or for
Speaker 3: are you talking about economics or are you talking about Wow,
Speaker 3: did you see that bald eagle out there? Did you
Speaker 3: catch that? You know, see the moon last night? Like?
Speaker 3: What do you guys talking about?
Speaker 4: So, as I said, the agenda's pretty There'll be three
Speaker 4: dinners and then in the afternoons there's a hike. And
Speaker 4: so after the dinner, sometimes you go to the bar
Speaker 4: and sometimes you don't. There's lots of opportunities to make
Speaker 4: new relationships and connections. There are central bankers from around
Speaker 4: the world here. And when I'm talking to a central
Speaker 4: banker from Argentina, I'm talking about the Argentinian economy because
Speaker 4: I'm interested in it. And you know, we don't have
Speaker 4: the same kind of backgrounds and our kids don't go
Speaker 4: to school together. So that's kind of business. Now, when
Speaker 4: I talk to people that I already know, then we
Speaker 4: could talk about, you know, most anything, tell stories about whatever.
Speaker 4: But I think these other central bank I mean, it
Speaker 4: is very interesting to understand how the US is seen
Speaker 4: from other windows and how those economies are. I talked
Speaker 4: to someone from Germany yesterday. This is going to make
Speaker 4: me interested, but not yours. Our savings rate went up
Speaker 4: at the beginning of COVID to about fifteen or sixteen percent.
Speaker 4: The same thing happened in Germany. Our savings rate has
Speaker 4: come down to about three and a half. Theirs is
Speaker 4: still at seventeen. Really, so why are German consumers not
Speaker 4: spending the way American consumers are. That's an interesting topic
Speaker 4: thing we spent some time on. It's the kind of
Speaker 4: example of the kind of thing. Well, so, the thing
Speaker 4: that really makes it crazy interesting is there's a whole
Speaker 4: social safety debt in Europe that doesn't exist here. And
Speaker 4: so most of the time you think people are saving
Speaker 4: for retirement, they're saving for a rainy day, or they're
Speaker 4: saving because they're worried about losing their job. Well, in
Speaker 4: Germany they kept everyone's job during the pandemic, and you've
Speaker 4: got a pension, So why are they saving? And I
Speaker 4: think the best explanation I've gotten it's actually something on
Speaker 4: my list to study going forward. Is there's just a
Speaker 4: lot more precautionary feeling about the situation in Europe, the
Speaker 4: risks versus the Ukraine and what's happening over there, And
Speaker 4: it's just a culture that maybe it's just gotten a
Speaker 4: lot more cautious due to geopolitics, if nothing else.
Speaker 3: That does sound really interesting by and large. I mean,
Speaker 3: obviously the situation in the Argentina economy is radically different
Speaker 3: than it is here in the US. Germany is probably still,
Speaker 3: you know, all things considered similar cyclically to the US.
Speaker 3: Does it feel like buy and large charge, at least
Speaker 3: among developed countries central bankers that there is a strong
Speaker 3: set of common mysteries perhaps, or are they really like
Speaker 3: everyone's sort of seeing different things in their own country.
Speaker 3: I mean, I'm sure it's makes of both, But how
Speaker 3: much of a global factor? Is there?
Speaker 4: Much more in common than different? The whole practice of
Speaker 4: central banking has been i'd say globalized over the years,
Speaker 4: and central bankers really do think about inflation targeting, for example,
Speaker 4: the same ways in their banks like New Zealand and
Speaker 4: Australia that back in two thousand or even before that
Speaker 4: set inflation targets before the rest of us, and we
Speaker 4: learned from them, and so there's a lot of learning,
Speaker 4: there's a lot of discussion. I think there's very much
Speaker 4: a common framework. Now. The economies are very different. I mean,
Speaker 4: the US economy has come through this unbelievably well. The
Speaker 4: European economies have not, and so we have a much
Speaker 4: stronger economy. So much of our economy as services, so
Speaker 4: much as supplied to ourselves. A lot of this deglobalization
Speaker 4: has felt much more on the European side. The challenges
Speaker 4: in China right now are felt much more on the
Speaker 4: European side. And then emerging market countries, they really just
Speaker 4: are worried we're going to increase rates further and they're
Speaker 4: going to end up offside, and so they're very dependent
Speaker 4: on our strength of our dollar the weakness.
Speaker 2: Now, when we were with you in North Carolina, I
Speaker 2: remember we talked about the process of putting together the
Speaker 2: statements for the FMC meetings. And we're here at Jackson
Speaker 2: Hole every year the FED chair gives a speech. What's
Speaker 2: the process like for putting together that particular speech?
Speaker 4: Well, it's his speech, so I'll let him talk backly
Speaker 4: how he does the process. But I've talked to him before,
Speaker 4: and I know he thinks about it for months. I mean,
Speaker 4: this is a big speech on a global stage. It's
Speaker 4: gotten a certain amount of cachet to it, and he
Speaker 4: thinks hard about, you know, what he wants to say
Speaker 4: and how he wants to say it, and he writes
Speaker 4: the speech, and you know he'll consult with who he
Speaker 4: wants to when he does that, but it's his speech
Speaker 4: and it's his conversation.
Speaker 3: Were you surprised? So you know, the markets were a
Speaker 3: bit surprised by the forcefulness with which Powell really just
Speaker 3: focused on cutting off left tail outcomes for the labor market.
Speaker 3: And it's clear that the big shift has happened, and
Speaker 3: he very explicitly said, we do not have any aspirations
Speaker 3: to see a softer labor market, and in some sense
Speaker 3: it's softer than it is in twenty nineteen. Were you surprised,
Speaker 3: I don't know when you first read this speech, probably
Speaker 3: before us. Were you surprised?
Speaker 4: He gets to write his own speech, so he once
Speaker 4: see that.
Speaker 3: Clearly, I think we're taken by surprise.
Speaker 4: Otherwise, we want to see the economy. Since we were
Speaker 4: together three or four months ago, the economy has moved
Speaker 4: in a in a very different way. First of all,
Speaker 4: on the inflation side, I might have even said four
Speaker 4: or five months ago, I was looking for inflation to
Speaker 4: sustain and broaden. So it's sustained. We've got very low
Speaker 4: readings for four months in a row, and it's now
Speaker 4: across the backs, whereas six months ago, eight months ago,
Speaker 4: it was really just in goods, and so the concern
Speaker 4: about inflation reaccelerating has definitely come down significantly. At the
Speaker 4: same time, the labor market stats have also softened, and
Speaker 4: so you know, the phrase I've been using is people
Speaker 4: aren't hiring, but they're not firing, and that's just not
Speaker 4: a high likely sustainable outcome. Either demand will continue and
Speaker 4: people start hiring again, or you'll start to see layoffs.
Speaker 4: And so I think there's more concern on the labor
Speaker 4: market and less concern on inflation relatively, and we've got
Speaker 4: to dual mandate. So I think if you look at
Speaker 4: the minutes that came out a week ago, they'll give
Speaker 4: you a pretty good sense of where the committee was.
Speaker 4: And I think, as always, Jay speaks thoughtfully and responsibly
Speaker 4: for the committee.
Speaker 2: So one of the reasons we like talking to you
Speaker 2: is because you go out and you speak to companies
Speaker 2: about what they're actually doing in an attempt to figure
Speaker 2: out what that means for the economy. What are you
Speaker 2: hearing from companies right now versus say April when we
Speaker 2: last spoke to you, was it April?
Speaker 3: I think so.
Speaker 4: Consumers, you hear a lot of talk about people saying
Speaker 4: that consumer's weak and people are running out of savings.
Speaker 4: That's not what I'm hearing. What I'm hearing is consumers
Speaker 4: are still spending, but they're choosing. And the way I
Speaker 4: think about it is they now have the time to
Speaker 4: when they go into a store and they see something
Speaker 4: that's at a price, they don't like to say, I
Speaker 4: think I'm going to do something else. And so if
Speaker 4: you look at Walmart's you know results, they would talk
Speaker 4: about people trading down. If you look at targets results,
Speaker 4: they talked about the kind of reaction they're getting to
Speaker 4: lower prices. McDonald's results in the five dollars value meal.
Speaker 4: I've talked to hotel chains that every room is booked,
Speaker 4: but they can't raise price at all because the second
Speaker 4: they raise price, people just won't buy it and won't
Speaker 4: book it. I talk to a fast food leader who's
Speaker 4: rolling out software actually to encourage their franchises not to
Speaker 4: raise prices anymore.
Speaker 2: That's a counter trend.
Speaker 4: Yeah, So I really think what's going on is prices
Speaker 4: are up, people are aware of it, and people are reacting.
Speaker 4: Two years ago, you know, you were just out spending
Speaker 4: and you just wanted it, or you needed those Tailor
Speaker 4: Swift tickets. You always like it when I bring Taylor
Speaker 4: Swift back in. But I think today people are making
Speaker 4: choices and they're spending money where there's promotions where there's discounts,
Speaker 4: or they're you know, moving from beef to chicken, or
Speaker 4: they're moving from Kroger to Walmart.
Speaker 3: Do you still hear from companies that have vacancies unfilled?
Speaker 3: What's going on with that?
Speaker 4: You do? You do hear vacancies, It's narrower, so it's
Speaker 4: really places with skilled trades, nurses, mechanics, auto mechanics. Those
Speaker 4: are the kinds of places where people are still hiring
Speaker 4: in small towns. And we were together in a small town,
Speaker 4: but you just don't have the same supply of labor
Speaker 4: in small towns. That's where they're vacancies. And when I'm
Speaker 4: talking to the bigger companies. What they're telling me is,
Speaker 4: you know, I'm just kind of slowing down the hiring.
Speaker 4: You know, I'm gonna let attriction work my workforce down.
Speaker 4: I don't want to fire people because I don't want
Speaker 4: to end up short again, but I'm just gonna slow
Speaker 4: it down. And then I've been pressing them and I've
Speaker 4: been saying, but do you have plans for layoffs? Because
Speaker 4: you know, if you're going to do a layoff, it
Speaker 4: takes you three months to get it done, and no
Speaker 4: one that's doing that right, I mean one person here there.
Speaker 4: And so that's why I say we're in a low hiring,
Speaker 4: low firing mode. It just that doesn't feel like something
Speaker 4: that's going to persist. And so it's going to move
Speaker 4: left or it's going to move right. We'll just have
Speaker 4: to see.
Speaker 2: What's the urgency then on supporting the labor market, and
Speaker 2: there's obviously a debate going on right now about how
Speaker 2: fast deterioration in that market actually happens. We had Claudia
Speaker 2: Palm on the podcast recently and she was talking about
Speaker 2: maybe it's different this time, but how are you thinking
Speaker 2: about the pace or the rate of change in the
Speaker 2: labor market.
Speaker 4: So the other thing that's happening in the labor market
Speaker 4: is a lot more supply of labor, and part of
Speaker 4: that is participation, prime age participations hitting twenty twenty five
Speaker 4: year highs, and immigration which is up significantly. And so
Speaker 4: the last jobs report, where unemployment went up from four
Speaker 4: point one to four point three, you actually added jobs
Speaker 4: one hundred and fourteen thousand jobs. We just added four
Speaker 4: hundred and twenty five people to the workforce. So the
Speaker 4: denominator got bigger. And so you know, there's some people
Speaker 4: who look at the unemployment rate and say, oh my gosh,
Speaker 4: the labor market's about to fall off a cliff. That's
Speaker 4: not how I see it, you know, I see a
Speaker 4: loosening labor market being driven by a lot more supply. Now,
Speaker 4: what's the urgency. It's not. We're not in a situation
Speaker 4: I don't believe where there is this big cliff there.
Speaker 4: But when we make policy, you're trying to make it
Speaker 4: for a year from now, right, because the lags of
Speaker 4: monetary policy, you're trying to meet a year a year
Speaker 4: from now. And so you've got a labor market which
Speaker 4: is slowly cooled, and you've got inflation which is now
Speaker 4: gradually cooled, and so you sort of say, well, which
Speaker 4: do I worry most more about? And it's been very
Speaker 4: clear for the last two and a half years that
Speaker 4: all you'd worry about is inflation, and now those are
Speaker 4: much more balanced. And then you ask the question, Okay,
Speaker 4: we've got rates and restrictive territory. Real rates if you
Speaker 4: look at the financial markets are a little bit over
Speaker 4: two percent. Maybe you can take a little bit of
Speaker 4: the edge off that. That's I think dialing down the
Speaker 4: level of restraint is the way I think the chair
Speaker 4: says it. But you can take a little bit of
Speaker 4: the edge off that in a world where your risks
Speaker 4: are more balance. That's how I think about it.
Speaker 3: I'm going to try to keep pushing you on this.
Speaker 4: And well, this will be fun. Yeah, you'll ask me
Speaker 4: the same question five times.
Speaker 3: Yeah, I'll see if I get to get a slightly
Speaker 3: different answer each time. You know, there'd be one school
Speaker 3: of thought that would say, if you're concerned about potential
Speaker 3: weakening of the labor market, that the current low firing
Speaker 3: hiring is unsustainable and the risks have shifted to the
Speaker 3: labor side, that you want to start the rate cut
Speaker 3: cycle and make a statement, and maybe that would mean
Speaker 3: fifty basis points versus say, easing into it with maybe
Speaker 3: a few twenty fives strong out How would you think
Speaker 3: about the different possible paths that the FED can now
Speaker 3: take to reducing the risks of a bad outcome in
Speaker 3: the labor market.
Speaker 4: To me, the question is all conviction. You know, what
Speaker 4: do you convinced of? Yeah, And the stronger your conviction,
Speaker 4: then the more forcibly you move, whether that's raising rates
Speaker 4: or lowering rates. And then the more that you're in
Speaker 4: a test and learn world, I think the more you say,
Speaker 4: let's move gradually or deliberately or methodically, whichever your favorite
Speaker 4: word is. So to me, it's about conviction. How convinced
Speaker 4: are you and the scenario you just painted, you were
Speaker 4: extremely convinced, even convincing, if you want to put it
Speaker 4: that way, in terms of what you were trying to do.
Speaker 4: I think we'll learn more as the year goes on
Speaker 4: in terms of the data in the same way that
Speaker 4: we did when we started raising rates with inflation. We
Speaker 4: started small, and then you know, we got convinced that
Speaker 4: inflation was not going away and you had to move faster.
Speaker 4: So the more convinced you are the faster and more?
Speaker 3: And how what scenario are you convinced of right now?
Speaker 4: Well, I've described you know where we are right now,
Speaker 4: which is we've got risks on the inflation side still,
Speaker 4: and we've got risks on the unemployment side still, and
Speaker 4: we've got either one of them could go in both ways.
Speaker 4: So I'm in. I'm very much a test and learn
Speaker 4: kind of guy in general, and you know, we'll obviously
Speaker 4: learn a lot even before the next meeting, so we'll
Speaker 4: see what we learn.
Speaker 2: You mentioned data just then, and this is obviously been
Speaker 2: a big theme for the FED, which is the idea
Speaker 2: of data dependency, not data point dependency, to refer to
Speaker 2: how Powell has described it. But I guess my question
Speaker 2: is how much confidence do you have in the data
Speaker 2: right now? Given that we've been talking about and debating
Speaker 2: things like sentiment surveys for a couple years now. So
Speaker 2: I guess in this time in twenty twenty three, there
Speaker 2: was all to talk about the Vibe session, and if
Speaker 2: you looked at the consumer surveys, people were basically describing
Speaker 2: the way they felt as if we were already in
Speaker 2: a recession. And then setting aside the surveys even the
Speaker 2: hard data seems to have a question mark over it
Speaker 2: at the moment. We just saw that massive revision from
Speaker 2: the BLS. So how much confidence do you have in
Speaker 2: the data and how are you sort of thinking of
Speaker 2: interpreting it at the moment.
Speaker 4: So we do an SEP every quarter, and one of
Speaker 4: the questions is that level of uncertainty, And to me,
Speaker 4: that always fits into how confident are you feeling about
Speaker 4: what's happening in inflation's unemployment. I actually think the data
Speaker 4: has come in in a very consistent way on both
Speaker 4: sides of the mandate over the last three or four months.
Speaker 4: I mean, I've talked to you about inflation, which has
Speaker 4: come down and broadened. You know, you now have the
Speaker 4: percent of price increases over three percent or over five percent,
Speaker 4: going back toward pre COVID norms. And that's very consistent
Speaker 4: with what I'm hearing with businesses and consumers as I'm
Speaker 4: talking to them. So what I think I'm hearing on
Speaker 4: inflation is very consistent. Same thing unemployment. The labor market
Speaker 4: is loosening. It's definitely not overheated the way it was before.
Speaker 4: It's definitely not a problem either. You know, this low hiring,
Speaker 4: low firing is a perfectly fine place to be. We're
Speaker 4: still adding jobs. So I think in both cases, the
Speaker 4: data is coming in very consistently, and that gives me confidence.
Speaker 4: You may have been referring, though, to the benchmark revision
Speaker 4: that happened earlier this week, and that basically said for
Speaker 4: last year's data, which was ridiculously high, now it was
Speaker 4: just very, very high. And so again I didn't take
Speaker 4: that much out of that data either. What is different
Speaker 4: about the labor market now, this is both a data
Speaker 4: thing and a reality thing. Is this big increase in
Speaker 4: supply of labor by people who are seeing opportunities in
Speaker 4: the workforce and coming into the country. And the question
Speaker 4: of how that does or doesn't overwhelm the job creation
Speaker 4: engine that we've got in the country. I think that
Speaker 4: is an area of uncertainty that we'll see play out
Speaker 4: over the next several quarters.
Speaker 3: So I want to go back to something you said before,
Speaker 3: which is that you think there could still be upside
Speaker 3: risk to inflation, at least in theory. You know, Powell
Speaker 3: certainly didn't give that vibe today in his speech, At
Speaker 3: least from his speech. He didn't. If he thinks that
Speaker 3: there's still upside risk to inflation. He didn't talk about that.
Speaker 3: I'm curious why you think so and what's your concern there.
Speaker 4: Well, I see inflation risk into upside risk in two places.
Speaker 4: First is, we're at two and a half percent for
Speaker 4: the last twelve months our targets too. So while we're
Speaker 4: doing great at bringing it down from when it was
Speaker 4: once seven point one, core is still at two and
Speaker 4: a half percent, And even the most optimistic forecast for
Speaker 4: the back half of this year don't believe it'll get
Speaker 4: to two percent because the numbers are on a twelve
Speaker 4: month based like on a twelve month basis, because the
Speaker 4: last half of last year was also very good, and
Speaker 4: so we're at least six months away even with really
Speaker 4: good inflation data from the inflation numbers hitting two percent.
Speaker 4: If the numbers are just pretty good, not really good,
Speaker 4: there's a risk that we plateau at some level over
Speaker 4: two percent. That's one risk. The other risk is I
Speaker 4: do see medium term inflation pressures that are out there.
Speaker 4: We have a conflict in the Middle East that could spiral.
Speaker 4: Deglobalization is a very real risk, and that means that
Speaker 4: the imports of goods could be more expensive going forward.
Speaker 4: Or if we even reshore more expensive housings a place
Speaker 4: where if rates artists start coming down, one of the
Speaker 4: things I worry about is that will spool up demand
Speaker 4: for people who've been waiting to buy a house till
Speaker 4: mortgag traits come down. But there won't be any new
Speaker 4: houses built. I mean, you don't. That effect is two years,
Speaker 4: three years out. And so what happens if you have
Speaker 4: more demand for houses with the same kind of supply,
Speaker 4: or even if more houses come on the market. Everyone
Speaker 4: who puts their house in the market is a buyer
Speaker 4: and a seller, so you'd still have this excess of
Speaker 4: demand over supply. So those things are potential inflationary risks. Now,
Speaker 4: good policy works against that, and if we do the
Speaker 4: right thing with rates, we'll work against But that's why
Speaker 4: I just want to make sure I understand it and
Speaker 4: see it before I sort of declare victory.
Speaker 2: What's been the most surprising thing that you've heard at
Speaker 2: Jackson Hole this year? You talked about German savings rate,
Speaker 2: but beyond that, is there anything that caught your eye
Speaker 2: or well?
Speaker 4: Alan Blinder asked a question today that I thought was
Speaker 4: pretty interesting. He said, when you think about monetary policy lags.
Speaker 4: Why aren't you talking about how to shorten them? And
Speaker 4: I've said almost as it's a given that when we
Speaker 4: raise or lower rates it takes twelve to eighteen months
Speaker 4: for the full effect to go into the economy. Well,
Speaker 4: part of that is because the economy doesn't behave in
Speaker 4: a way that would allow it to happen quicker. An example,
Speaker 4: I think the number is in two thousand and nine,
Speaker 4: sixty percent of these mortgages in this country were adjustable rate.
Speaker 4: Today it's eight percent. Yeah, okay, And so when we
Speaker 4: raise or lower rates, it doesn't flow through to mortgages quickly,
Speaker 4: and certainly not even like it did fifteen years ago.
Speaker 4: And I'm not saying we should change the mortgage market,
Speaker 4: but it does make you stop and think how much
Speaker 4: of our policy the effectiveness of our policy tools, is
Speaker 4: a given or how much could actually change over time
Speaker 4: as the economy changed.
Speaker 3: Yeah, those legs, I mean, we talked about them a
Speaker 3: lot on the way up, and you mentioned, you know,
Speaker 3: you want to target for where you think you're going
Speaker 3: to be in a year. You know, on the way down,
Speaker 3: would you expect a sort of similarly long legs? So okay,
Speaker 3: there's concern about the unemployment rate rising. We've already seen
Speaker 3: it go to four point three percent. Maybe it's for
Speaker 3: reasons that are not that bad this time, because of
Speaker 3: the new supply of labor. But you know, every recession
Speaker 3: that I can never remember started with a debate about
Speaker 3: whether we're in a recession or not. And so I
Speaker 3: don't take a ton of comfort from the ambiguity because
Speaker 3: at the beginning there's all ambiguity, and you know, there
Speaker 3: is certainly the question of, like, why did it take
Speaker 3: so long into such aggressive hiking. You mentioned that at
Speaker 3: the start of the hiking cycle you started small and
Speaker 3: then had to start getting big when they weren't having
Speaker 3: the effect you thought, do you have similar concerns in
Speaker 3: the other direction that we could sort of see the
Speaker 3: same problems except through mirror.
Speaker 4: I actually think a large part of the economy is
Speaker 4: standing in readiness for the rate reduction cycle to start,
Speaker 4: and I've talked to lots of businesses that are debating
Speaker 4: when to start their capital spending. I've talked about housing
Speaker 4: a second ago. I've talked to lots of realtors who
Speaker 4: believe that once the mortgage rates hit six or go
Speaker 4: under six. So I think there's a lot of demand
Speaker 4: out there, and that is a little bit. That's both
Speaker 4: good news if you were about the economy or the employment.
Speaker 4: It's also risky if you're worried about inflation. But I
Speaker 4: think that's out there. The one thing I worry about
Speaker 4: is when I talk to especially real estate developers, about,
Speaker 4: you know, when rates are back to normal. A lot
Speaker 4: of times the number they have in their head is
Speaker 4: what the rates were in April of twenty twenty one,
Speaker 4: which was, you know, a mortgage rate of two point
Speaker 4: six percent. I talked to somebody this week about well,
Speaker 4: out of outside of recession. I don't think that's happening,
Speaker 4: and so I just worry that expectations. You know, the
Speaker 4: yield curve is inverted, for example, which means the long
Speaker 4: term rate is lower than the short term rate. When
Speaker 4: we lower the short term rate, which is all we do,
Speaker 4: it's not a given that the long rate is just
Speaker 4: going to come down a bunch more. It might, but
Speaker 4: it might not. And so I do worry a little
Speaker 4: bit that there are hopes out there that aren't in
Speaker 4: alignment with reality.
Speaker 2: Or there are plenty of people that think inflation coming
Speaker 2: down means that prices are going to return to like
Speaker 2: twenty nineteen levels, yeah, which doesn't really seem realistic on
Speaker 2: this idea of normalization just going back to the labor market.
Speaker 2: But people bring up that term and say, oh, the
Speaker 2: labor market is normalizing, it's coming down from being red
Speaker 2: hot to something more reasonable, more healthy potentially. But what
Speaker 2: are we normalizing too in your opinion, Like, where do
Speaker 2: you think we're actually heading? And is it possible that
Speaker 2: the labor market in twenty twenty five looks very different
Speaker 2: to say twenty nineteen or twenty eighteen.
Speaker 4: In a perfect world, In a theoretical world, we would
Speaker 4: lower our rates down to the neutral rate, our star,
Speaker 4: and at that neutral rate, we would neither be stimulating
Speaker 4: nor restricting the economy, and everyone who wants a job
Speaker 4: would have a job, An inflation would be low and steady,
Speaker 4: and we just rock on. That's not actually how things
Speaker 4: work in practice. Things come in from left field, both
Speaker 4: good news and bad news, inflationary and recessionary, and you
Speaker 4: have to just make policy against what you've got. And
Speaker 4: so if you look at our forecasts, most of the
Speaker 4: SEP estimates or that the neutral rates somewhere between two
Speaker 4: and a half and three and a half percent. That's
Speaker 4: for the overnight rate. The confidence interval when you get
Speaker 4: into the models would add another one hundred basis points
Speaker 4: on either side of that, So maybe it's one and
Speaker 4: a half to four and a half. And so the
Speaker 4: notion it gets back to the conviction that I was
Speaker 4: talking about earlier. If you thought you knew, and you
Speaker 4: thought you know we had hit the soft landing and
Speaker 4: we were there, you would just lower the rate to
Speaker 4: the neutral rate. You would declare victory, you'd have a party,
Speaker 4: you'd put on the vest, the mission accomplished, all of
Speaker 4: that stuff. It just doesn't feel like the right way
Speaker 4: to do it. And that's why I call myself a
Speaker 4: test and learn person, because I think you sort of
Speaker 4: want to feel your way there, and you'll learn based
Speaker 4: on whether inflation has settled or is accelerating. You'll learn
Speaker 4: based on whether the labor market is growing or shrinking,
Speaker 4: and you'll learn those things as you go. And you
Speaker 4: had just rates as appropriate.
Speaker 3: If the unemployment rate were to, say, drift up by
Speaker 3: another half a percent, would that be mandate consistent? At
Speaker 3: what point does the unemployment have to rise in your
Speaker 3: view to say no? This is because Howell said he
Speaker 3: doesn't want to say any more labor market weakening. There's
Speaker 3: no more. At what point does labor market weakening mean
Speaker 3: you've actually lost that leg of the mandate?
Speaker 4: I mean, most people think the you star or the
Speaker 4: neutral rate for or the non inflation exciting rate of
Speaker 4: employment is about four four and a half somewhere in
Speaker 4: that range. And I suspect that's what he was referring
Speaker 4: to when he said that, because if it's at four
Speaker 4: to three today, that's kind of what most people think
Speaker 4: you STAR would be. I think I should come back
Speaker 4: to an important concept, which is it's impossible to be
Speaker 4: perfect here, and so we can spend lots and lots
Speaker 4: and lots of time trying to navigate between one point
Speaker 4: nine percent inflation and two and two point one and
Speaker 4: two and four point three percent employment or four point
Speaker 4: four or four point two, and so I think it's
Speaker 4: really hard to land it in a perfect place and
Speaker 4: then have it just stay perfect for forever.
Speaker 3: The unemployment rate always seems to be moving in one Yeah.
Speaker 4: These things are always moving, and so you react to
Speaker 4: the economy you've got. And if unemployment is four point
Speaker 4: eight percent, that's higher than I think most not all
Speaker 4: of my colleagues assessment of what would be neutral, and
Speaker 4: so that would be something you'd want to work against,
Speaker 4: and you'd work really hard against it if inflation was
Speaker 4: under control, and then you'd have some challenges if inflation
Speaker 4: was out of and so are those are the kind
Speaker 4: of debates you have, and we even said in our framework,
Speaker 4: you know, you got to assess the balance of risks
Speaker 4: across the two mandate goals. I mean, that's the challenge
Speaker 4: with having to du a mandate.
Speaker 2: Okay, Tom Barkin, thank you so much for coming back
Speaker 2: on all thoughts. Really appreciate it and great to catch
Speaker 2: up with you in Jackson Hall and.
Speaker 4: We'll all travel again together soon, I'm sure.
Speaker 2: Yeah, Joe, that was fascinating and I'm so glad we
Speaker 2: could get the perspective of an actual policymaker who has
Speaker 2: been attending what was it seven of these things.
Speaker 3: Yeah, that's great. I really like talking to Tom. It's
Speaker 3: interesting that he, at least from what you know, what
Speaker 3: he said, it sounds like he've used things a little
Speaker 3: bit differently than Chairman Powell. So, like I said, in
Speaker 3: the speech that Powell gave, there was no talk of
Speaker 3: inflation risks at this point. It was interesting to hear
Speaker 3: Tom outline multiple reasons, and I think that housing one
Speaker 3: in particular is very interesting. The idea that like you
Speaker 3: have this lever which is you lower rates and then
Speaker 3: people fled back into the housing market and the prices
Speaker 3: go up, and then you just sort of like, it's interesting.
Speaker 2: It seems difficult to calibrate the impact of a rate
Speaker 2: cut right now. There is that sort of reflexivity where
Speaker 2: you're addressing a potential issue, but by addressing that potential issue,
Speaker 2: you could release additional demand and activity.
Speaker 3: He also said, and I was thinking about asking a
Speaker 3: follow up, but he said it, which is that you know,
Speaker 3: when you described the low hiring low firing, that there
Speaker 3: is still this residual concern about being caught short labor
Speaker 3: among businesses, which I think is something we've talked about
Speaker 3: a lot. This could be this assistant phenomenon, not just
Speaker 3: in like this moment in the cycle, but for a while,
Speaker 3: the memories of being caught short labor as you know,
Speaker 3: people to call labor hoarder or whatever, and keeping you know,
Speaker 3: hopefully perhaps a lid on where the unemployment rate goes.
Speaker 2: Well, that's true of inflation too, right. Barkin has spoken
Speaker 2: about this, this idea that will companies learn that they
Speaker 2: can raise their prices in an inflationary environment, and so
Speaker 2: perhaps the next time inflation risks start to emerge, they'll
Speaker 2: be even faster at doing that.
Speaker 3: Well, I think that we need to start propagating the
Speaker 3: notion of employment expectations. So the idea of inflation expectations, right,
Speaker 3: is you want to keep inflation expectations well anchored, because
Speaker 3: if people start to believe that inflation is going to rise,
Speaker 3: then they're going to behave as if inflation is going
Speaker 3: to rise, and that will create inflation. I don't really
Speaker 3: understand why you don't hear the same conversation about employment expectations,
Speaker 3: which is, if you think the unemployment rate is going
Speaker 3: to stay low, then you were going to be slower
Speaker 3: to fire for the exact reason he said, and that
Speaker 3: will keep the unemployment rate low. And so I believe
Speaker 3: that actually there is an opportunity to sort of like
Speaker 3: realize that this sort of the expectations beget reality story
Speaker 3: that people tell on the inflation side could also play
Speaker 3: out on the employment side.
Speaker 2: Yeah, I mean we kind of saw that already. Yeah,
Speaker 2: it rose twenty twenty where everyone was talking about labor
Speaker 2: shortages and so they sort of manifested themselves.
Speaker 3: And so I think we need to start hearing feed
Speaker 3: officials say we need to keep employment expectations well anchored.
Speaker 3: I like that. Thank you.
Speaker 2: You should write about that. Will Okay, shall we leave
Speaker 2: it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Oudlots podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow our producers Carmen Rodriguez at Kerman armand Dash Will
Speaker 3: been At at Dashbot and kel Brooks at Kelbrooks. Thank
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