WEBVTT - Richmond Fed President Tom Barkin Talks Iran War 0:00:02.520 --> 0:00:07.320 Bloomberg Audio Studios, Podcasts, radio News. 0:00:07.960 --> 0:00:10.280 Let's turn to the day jobless claims coming in at 0:00:10.280 --> 0:00:13.800 a nice to thirteen against the estimate of two fifteen 0:00:13.800 --> 0:00:17.640 and the previous number of two twelve. Lisa, jobless claims 0:00:17.680 --> 0:00:19.960 and continuing claims speak to the same thing we've been 0:00:19.960 --> 0:00:23.680 talking about for quite a while. Low higher, low fire, 0:00:23.960 --> 0:00:27.680 low fire captured in jobless claims, initial claims being very low, 0:00:27.960 --> 0:00:31.600 low higher captured in some very sticky high continuing claims. 0:00:31.680 --> 0:00:33.879 Yeah, and if you take a look at the initial 0:00:33.880 --> 0:00:36.480 claims four week moving average, it actually has gone lower 0:00:36.479 --> 0:00:38.640 from two hundred and twenty thousand in a week before 0:00:38.920 --> 0:00:41.600 to two hundred and fifteen thousand, essentially with this latest 0:00:41.640 --> 0:00:44.400 data so highlighting that. But you're right, continuing claims you've 0:00:44.400 --> 0:00:46.800 got to pay attention to, because it actually kicked upward 0:00:47.120 --> 0:00:51.279 to eighteen to one point eight six eight million, up 0:00:51.320 --> 0:00:54.480 from one point eight two million. A question here about 0:00:54.480 --> 0:00:57.160 whether that means that people aren't hiring, whether that's the issue, 0:00:57.200 --> 0:00:59.160 whether this is just a staff foo tied to whether 0:00:59.240 --> 0:01:02.240 or some other disrupt or, whether this really does highlight 0:01:02.440 --> 0:01:05.280 that maybe initial job with claims don't really show the 0:01:05.319 --> 0:01:07.240 pain that people experience on under the surface. 0:01:07.400 --> 0:01:09.480 This leib Marca has been frozen for quantu wile and 0:01:09.520 --> 0:01:11.319 this states of this morning speaks to the same thing. 0:01:11.560 --> 0:01:14.240 It's the right kind of downside surprise on initial claims, 0:01:14.280 --> 0:01:17.319 and it's the wrong kind of upside surprise on continuing claims. 0:01:17.440 --> 0:01:19.400 My McKay standing by, he's having to look at the data, 0:01:19.440 --> 0:01:21.160 and he's got a special guest for us as well. 0:01:21.160 --> 0:01:26.160 Come morning, Mike, Good morning, John Well. Claims are not 0:01:26.200 --> 0:01:28.679 the only number out this morning that matters. We're also 0:01:28.720 --> 0:01:31.560 looking at import prices for the month of January on 0:01:31.600 --> 0:01:33.759 a month over a month basis, they're up two tenths 0:01:33.760 --> 0:01:37.640 of eight percent after a decline in the prior month. 0:01:37.720 --> 0:01:40.880 And we're also seeing ex petroleum up four tenths. That 0:01:40.880 --> 0:01:43.680 puts kind of a lie to the idea that foreigners 0:01:43.720 --> 0:01:47.000 are absorbing the tariffs because the prices should go down 0:01:47.360 --> 0:01:51.400 if that's the case. Also, productivity up two point eight percent, 0:01:51.640 --> 0:01:55.080 which sounds good, except it was up by five point 0:01:55.160 --> 0:01:57.800 two percent in the third quarter, so not as great 0:01:57.840 --> 0:02:01.480 a news as perhaps people had hope. Let's get a 0:02:01.520 --> 0:02:04.000 read on how the economy is doing. Now. You mentioned 0:02:04.040 --> 0:02:06.840 a special guest, and indeed we do have one, Tom Barkin, 0:02:07.600 --> 0:02:10.720 president of the Richmond Fed. We're here at the Richmond 0:02:10.720 --> 0:02:12.840 Fed with him. And I know you haven't an attence 0:02:12.880 --> 0:02:16.720 to really look at these numbers, but in general, the 0:02:16.760 --> 0:02:20.919 low fire, low higher economy and the tariff affected economy 0:02:21.240 --> 0:02:22.680 seem to be about what they have been. 0:02:23.600 --> 0:02:25.480 Well, it's always good to come on right after a 0:02:25.520 --> 0:02:28.120 bunch of data comes out, but I wouldn't be as 0:02:28.160 --> 0:02:30.399 negative on the productivity as you just were. Two point 0:02:30.440 --> 0:02:32.519 eight percent on a last ten or twenty or thirty 0:02:32.600 --> 0:02:35.040 year basis is a really good number, and I think 0:02:35.639 --> 0:02:39.280 we are seeing companies invest in productivity and deliver it. 0:02:39.720 --> 0:02:42.880 Some of that technology AI, but I think a lot 0:02:42.919 --> 0:02:45.600 of it is you were caught short workers three years ago. 0:02:46.040 --> 0:02:49.799 You invested in new processes, new staffing models, automation, and 0:02:49.840 --> 0:02:51.320 people are seeing the results. 0:02:50.919 --> 0:02:52.840 Today and that holds down inflation. 0:02:53.800 --> 0:02:56.240 It does hold on inflation, and it allows people to 0:02:56.280 --> 0:02:59.200 maintain margins at times when their input costs might be 0:02:59.240 --> 0:02:59.680 coming up. 0:03:00.080 --> 0:03:02.200 Well, input costs are probably going up for people who 0:03:02.280 --> 0:03:05.480 use petroleum. So I want to start there with Obviously, 0:03:06.639 --> 0:03:10.600 the IRN war just started, but what's your gut feel 0:03:10.760 --> 0:03:14.959 about how that's going to impact prices and the economy. 0:03:15.280 --> 0:03:17.000 Don't have any sense on how long it's going to 0:03:17.040 --> 0:03:19.880 take or what the implications are going to be. Obviously, 0:03:19.960 --> 0:03:23.280 you watch oil prices. While the US is no longer 0:03:23.320 --> 0:03:25.600 in that importer, it's still the case that the price 0:03:25.680 --> 0:03:28.360 at the pump matters a lot in terms of sentiment, 0:03:28.480 --> 0:03:31.519 in terms of crowding out other spending. And so I'm 0:03:31.560 --> 0:03:34.480 just watching prices at the pump. They've jumped up over 0:03:34.480 --> 0:03:37.200 the last week. You can see that when you drive around. 0:03:37.480 --> 0:03:39.520 But of course no one knows whether this is going 0:03:39.560 --> 0:03:41.120 to be short term or long term, and so we'll 0:03:41.120 --> 0:03:42.000 just see where it goes. 0:03:42.280 --> 0:03:44.160 Well, back in the nineteen seventies, we had the oil 0:03:44.200 --> 0:03:46.400 price shock and we had gas lines and people were 0:03:46.400 --> 0:03:48.040 miserable and having to pay all this money, and so 0:03:48.080 --> 0:03:51.040 they've had eased into that that turned out to be 0:03:51.120 --> 0:03:54.320 a mistake. Does this put on hold ideas for the 0:03:54.360 --> 0:03:57.040 time being of continuing to cut rates. 0:03:57.280 --> 0:03:59.120 Well, I think we'll go meeting by meeting and we'll 0:03:59.120 --> 0:04:03.960 see what we see when we get there. Gas prices, obviously, 0:04:04.280 --> 0:04:08.160 if they're up, that is inflationary. Textbook monetary policy would 0:04:08.160 --> 0:04:10.320 be you look through a short term shock, but you 0:04:10.320 --> 0:04:12.280 don't look through a long term shock, and I think 0:04:12.280 --> 0:04:14.080 that's a lot of the assessment people are going to 0:04:14.160 --> 0:04:14.720 have to make. 0:04:15.120 --> 0:04:18.520 The Open Market Committee before the Iran War started. Basically, 0:04:18.560 --> 0:04:20.680 the views seem to be that we're at peak tariffs 0:04:20.760 --> 0:04:23.520 now and inflation will start to come down in the 0:04:23.600 --> 0:04:25.760 latter half of the year. But you throw this into 0:04:25.800 --> 0:04:28.760 the equation, where would you put yourself in terms of 0:04:28.800 --> 0:04:31.800 thinking about the progression of inflation and when you might 0:04:31.839 --> 0:04:35.560 have enough information to decide whether a cut is worthwhile 0:04:35.640 --> 0:04:35.880 or not. 0:04:36.760 --> 0:04:38.479 Well, we'll have to see how it evolves if you 0:04:38.520 --> 0:04:42.000 go back to the fall. The conversations I have with 0:04:42.200 --> 0:04:45.840 businesses suggest to me that they believe their pricing power 0:04:45.880 --> 0:04:51.360 is very limited. Consumers are exhausted by inflation affordability. People 0:04:51.440 --> 0:04:54.360 are pushing back, whether that be not purchasing or private label, 0:04:54.480 --> 0:04:57.800 or trading down to lower price retailers, or repairing rather 0:04:57.839 --> 0:05:00.920 than replacing, and so in the cut conversations you have, 0:05:01.440 --> 0:05:03.480 you do have a sense that we're on the backside 0:05:03.520 --> 0:05:07.080 of this inflationary period, we'll head back to normal, and 0:05:07.120 --> 0:05:09.839 the numbers in the fall apps and the government shut down, 0:05:10.040 --> 0:05:12.600 we're saying much the same thing I will say over 0:05:12.600 --> 0:05:14.760 the last month, and with the PC numbers that we're 0:05:14.800 --> 0:05:17.640 expecting next week, you've got a couple months of relatively 0:05:18.000 --> 0:05:22.200 high inflation. That certainly puts pause to any conclusion that 0:05:22.200 --> 0:05:25.680 we're done, you know, fighting this, But we'll see where 0:05:25.680 --> 0:05:25.920 we go. 0:05:26.200 --> 0:05:28.800 Well slicing the business leaders are telling you a little 0:05:28.839 --> 0:05:31.719 more closely. They know consumers are price sensitive and they're 0:05:31.720 --> 0:05:34.080 worried about that. But are they also in a situation 0:05:34.240 --> 0:05:37.120 where they've had to absorb too much and if we 0:05:37.200 --> 0:05:41.400 see more price increases of inputs, they're going to have 0:05:41.480 --> 0:05:42.320 to raise prices. 0:05:42.560 --> 0:05:44.479 Well, that's when we come back to productivity as being 0:05:44.480 --> 0:05:48.160 so key to this whole story. Because most every business 0:05:48.160 --> 0:05:51.040 I talked to last April that got tariffs was going 0:05:51.080 --> 0:05:53.720 to pass it on. It was just clear, and you know, 0:05:54.240 --> 0:05:57.039 they needed to maintain margins that consumer was going to 0:05:57.080 --> 0:05:59.200 have to take it. And when they experiment with that, 0:05:59.240 --> 0:06:02.600 they got a lot of push back, and so prices 0:06:02.600 --> 0:06:05.720 didn't increase the way that a lot of those folks expected. Now, 0:06:06.440 --> 0:06:09.120 their margins have been very steady, and so corporate margins 0:06:09.120 --> 0:06:12.120 are quite healthy. Earnings were up I think thirteen percent 0:06:12.160 --> 0:06:15.159 fourth quarter a year every year, and that's because productivity 0:06:15.200 --> 0:06:19.160 has allowed people to absorb these hits without you know, 0:06:19.440 --> 0:06:22.560 having effect margins and having to pass it on fully 0:06:22.560 --> 0:06:25.440 in prices. And when you start seeing good productivity numbers 0:06:25.440 --> 0:06:26.839 over and over and over again, that gives you some 0:06:26.920 --> 0:06:28.200 hope that can continue. 0:06:28.320 --> 0:06:30.920 What are you hearing from businesses about the other side 0:06:30.920 --> 0:06:36.160 of your mandate employment? Obviously we're seeing low, low fire continue. 0:06:36.440 --> 0:06:36.960 Yeah. 0:06:37.000 --> 0:06:39.600 I have to say the businesses I talk to when 0:06:39.640 --> 0:06:42.920 they describe the labor market, they describe it as pretty open, 0:06:43.760 --> 0:06:50.840 maybe even loose, availabilities, high turnovers low. I was with 0:06:50.880 --> 0:06:54.080 a bunch of poultry processors in the Eastern Shore who 0:06:54.080 --> 0:06:57.200 told me that even after losing workers you know, to 0:06:57.800 --> 0:07:01.400 temporary protected status, they've been able to replace them relatively 0:07:02.480 --> 0:07:05.160 relatively easily. And if you can replace poultry workers, I 0:07:05.200 --> 0:07:08.720 think you've got a reasonably open job market. And of course, 0:07:08.760 --> 0:07:10.720 going back to the fall, that's what we saw as 0:07:10.920 --> 0:07:14.040 unemployment was ticking up. I will say the last couple 0:07:14.040 --> 0:07:16.960 months of employment data has been reassuring. As you've seen 0:07:16.960 --> 0:07:20.960 the unemployment rate came down, jobless claims have stayed low, 0:07:21.000 --> 0:07:23.720 and so you still hear a relatively loose labor market. 0:07:23.720 --> 0:07:28.800 You still hear people not hiring but not firing, But 0:07:28.840 --> 0:07:30.680 the numbers are even better than I think. 0:07:30.720 --> 0:07:32.600 What you hear, Well, it sounds like you think at 0:07:32.640 --> 0:07:35.600 this point the risks to inflation and to employment are 0:07:35.640 --> 0:07:36.400 roughly balanced. 0:07:37.040 --> 0:07:38.880 Yeah, if you go back to the fall, I think 0:07:39.000 --> 0:07:40.880 a lot was behind our moves was the sense that 0:07:40.920 --> 0:07:42.960 the risk of the labor market were up while the 0:07:43.040 --> 0:07:45.360 risk of inflation were down. The data that's come in 0:07:45.400 --> 0:07:48.760 over the last couple months, what I think suggest it's 0:07:48.800 --> 0:07:49.760 moved in the other direction. 0:07:50.200 --> 0:07:52.480 Well, you mentioned that you know you're going to get 0:07:52.520 --> 0:07:57.040 probably an elevated PCE reading coming up at this point. 0:07:57.200 --> 0:08:00.760 Is monetary policy set at a place where it can 0:08:00.880 --> 0:08:05.600 help you bring down inflation or is it even too tight? 0:08:06.200 --> 0:08:07.560 Where is it on a scale? 0:08:08.360 --> 0:08:12.240 Well, I expect we're still modestly restrictive and that should 0:08:12.280 --> 0:08:15.120 help as we try to grind out the last mile here. 0:08:15.160 --> 0:08:17.720 But again we'll have to see. I definitely take note 0:08:17.800 --> 0:08:21.040 of the continued strength and demand, and so I don't 0:08:21.040 --> 0:08:24.280 think we're highly restrictive. If you were highly restrictive, you'd 0:08:24.280 --> 0:08:26.440 see a lot more impact on demand, which has stayed 0:08:27.240 --> 0:08:30.600 very healthy. I was reflecting it was four years ago 0:08:30.680 --> 0:08:33.480 that we first started increasing interest rates in March of 0:08:34.000 --> 0:08:37.560 twenty two. And if you had predicted then that we 0:08:37.600 --> 0:08:39.920 would have demand growth of the sort we've had over 0:08:39.960 --> 0:08:42.920 the last four years, you would have been a severe outlier. 0:08:43.920 --> 0:08:46.679 Let's talk about your new boss, who's coming in in 0:08:46.880 --> 0:08:50.040 very I guess Kevin Worsh's nomination's finally gone up to 0:08:50.080 --> 0:08:54.280 Capitol Hill. A lot of people think the FED chair 0:08:54.360 --> 0:08:57.560 can walk in and just change interest rates, but they don't. 0:08:57.640 --> 0:09:02.839 You all have a vote and his basic powers in persuasion. 0:09:03.360 --> 0:09:05.080 How do you think he'll do. How do you think 0:09:05.120 --> 0:09:08.559 the dynamics play out when somebody new comes into the 0:09:08.600 --> 0:09:09.400 building like that? 0:09:09.800 --> 0:09:11.800 Well, it'll be a new experience for me too, since 0:09:11.880 --> 0:09:14.480 Jay was in the building when I started eight years ago. 0:09:16.040 --> 0:09:18.720 I mean, I like and respect Kevin, and I trust 0:09:18.800 --> 0:09:20.679 he'll do a good job, and I'm looking forward to 0:09:21.240 --> 0:09:25.559 working with him. You have a lot of smart, opinionated 0:09:25.600 --> 0:09:27.720 people in the room, and so you'll want to work 0:09:27.760 --> 0:09:30.160 with those folks. I think there's also a lot of 0:09:30.200 --> 0:09:33.520 respect for the chair and what the chair does to 0:09:33.559 --> 0:09:36.199 take a lot of the visible noise that happens from 0:09:36.240 --> 0:09:41.520 markets and the press and others, and so I think, well, 0:09:41.800 --> 0:09:43.360 I look forward to working with him, we'll see where 0:09:43.360 --> 0:09:43.560 we go. 0:09:43.880 --> 0:09:46.520 He makes the case for a number of changes at 0:09:46.520 --> 0:09:49.080 the FED, one of which would be a smaller balance sheet. 0:09:49.120 --> 0:09:50.240 Where do you come down. 0:09:50.040 --> 0:09:53.360 On it, I mean, instinctively, I like the idea of 0:09:53.440 --> 0:09:56.720 the FED having a smaller footprint and financial markets. I think, 0:09:56.800 --> 0:10:00.520 subject to still being able to operate monetary policy and 0:10:00.559 --> 0:10:04.280 control rates well and subject to not having severe adverse 0:10:04.400 --> 0:10:08.480 reactions in the markets. But it's instinctively it's an attractive idea. 0:10:08.600 --> 0:10:10.280 May if we can find a way to make it 0:10:10.320 --> 0:10:12.360 work in the context of the rest of what we're 0:10:12.360 --> 0:10:12.800 trying to do. 0:10:13.160 --> 0:10:15.560 He's also said he'd like to have a little bit 0:10:15.640 --> 0:10:21.840 less conversation from FED officials and maybe more coordinated interactions 0:10:21.880 --> 0:10:25.160 with the public. What do you think about that? Maybe 0:10:25.320 --> 0:10:26.840 asking you not to speak. 0:10:26.559 --> 0:10:29.360 As much, Well, that would give you some more time, 0:10:29.440 --> 0:10:30.960 So I'd be happy with that. 0:10:31.080 --> 0:10:31.240 Now. 0:10:32.400 --> 0:10:35.720 What I try to do in my outreach is very, 0:10:35.800 --> 0:10:39.080 very district oriented, and so I was in Martinsburg, West 0:10:39.160 --> 0:10:43.200 Virginia yesterday. I was in DC. The day before, I 0:10:43.280 --> 0:10:46.240 was in Hartford County, Maryland. Last Thursday, I was in 0:10:46.280 --> 0:10:49.480 Northern Virginia. On Tuesday, I was at Baltimore on Wednesday, 0:10:49.840 --> 0:10:53.720 and in each of those places, I'm actually not talking 0:10:53.760 --> 0:10:56.480 to you. I'm talking to chambers of commerce and rotary 0:10:56.480 --> 0:10:58.959 clubs and people who are interested in what's happened in 0:10:58.960 --> 0:11:02.440 the economy. And I think there's real value to being 0:11:02.480 --> 0:11:04.760 in front of these folks and putting a face on 0:11:04.800 --> 0:11:06.840 the FED. The design of the FED was a regional 0:11:06.880 --> 0:11:09.040 design from the start, and I think part of it 0:11:09.160 --> 0:11:13.520 was people wanted to trust and understand the people who 0:11:13.520 --> 0:11:16.480 are making these important decisions, and also to feel listened to. 0:11:16.880 --> 0:11:18.760 And I take a lot of pride in how much 0:11:18.880 --> 0:11:23.079 interaction and engagement I have across my five states and 0:11:23.120 --> 0:11:26.160 district of Columbia, and I hope to continue doing that. 0:11:26.200 --> 0:11:28.360 But to me, it's not and you know this because 0:11:28.559 --> 0:11:30.800 we've talked a lot before. I'm not trying to talk 0:11:30.840 --> 0:11:33.280 about how many rate cuts I have in my SEP 0:11:33.480 --> 0:11:35.880 for the next nine months. I'm trying to talk about 0:11:36.040 --> 0:11:38.000 here so I see the economy and ask them how 0:11:38.040 --> 0:11:40.439 are you seeing the economy? I think I get valuable 0:11:40.440 --> 0:11:41.200 insight that way. 0:11:41.520 --> 0:11:44.760 Well, last question, would you like to see Jay Powell 0:11:44.800 --> 0:11:47.200 stay on as a FED governor after his term as 0:11:47.280 --> 0:11:47.839 chair is up? 0:11:48.920 --> 0:11:50.600 I like Jay A. Ton I think he's done a 0:11:50.600 --> 0:11:52.839 spectacular job, and I want Jay to do absolutely the 0:11:52.840 --> 0:11:53.600 best thing for Jay. 0:11:54.040 --> 0:11:57.080 Okay, Tom Barkin, thank you very much. The President of 0:11:57.120 --> 0:11:59.720 the Richmond Fed will send it back to you. 0:12:00.120 --> 0:12:02.000 McKay, Thank you, sir. And that's a top tip for 0:12:02.040 --> 0:12:04.240 anyone that gets aunced that by Mike mckaanny time soon. 0:12:04.320 --> 0:12:06.400 Just repeat what Tom bak and just said. I want 0:12:06.440 --> 0:12:07.199 what's best for Jack. 0:12:07.840 --> 0:12:09.959 So not going to answer, but I think it was 0:12:10.000 --> 0:12:12.880 a great answer. Frankly, honestly, what he said was actually 0:12:13.320 --> 0:12:15.960 parsing through the vagaries that the FED is dealing with 0:12:16.240 --> 0:12:19.960 quite well, talking about how he still sees modestly restrictive policy, 0:12:20.120 --> 0:12:23.040 not exactly accommodative or neutral. And they did say that 0:12:23.080 --> 0:12:25.560 companies were having trouble passing along pricing, but that the 0:12:25.600 --> 0:12:28.880 recent inflationary data does give them pause. So sort of 0:12:28.920 --> 0:12:32.520 the dual mandate kind of balanced right now. He seems 0:12:32.559 --> 0:12:34.560 like he's kind of wanted to be waiting on the 0:12:34.559 --> 0:12:35.959 sidelines for more on inflation. 0:12:36.120 --> 0:12:37.800 On the energy shock, it keeps coming back to the 0:12:37.840 --> 0:12:40.840 same thing, the calendar. It depends how long this goes 0:12:40.880 --> 0:12:43.040 on for If it's a short term shock, the textbook 0:12:43.080 --> 0:12:46.360 says his words, look through it. If it's longer, the 0:12:46.400 --> 0:12:48.880 textbook says something else, how much longer is it going 0:12:48.920 --> 0:12:49.120 to be? 0:12:49.200 --> 0:12:50.719 Yeah, and this we don't know, And that I think 0:12:50.800 --> 0:12:52.720 is going to be a really important driver, and frankly, 0:12:52.760 --> 0:12:54.960 not just for the feder Reserve, for the entire market 0:12:55.000 --> 0:12:57.840 to reassess exactly what that impact is notable to me 0:12:59.000 --> 0:13:02.840 that President Barkin, Richard Fed. President Barkin was talking about 0:13:02.880 --> 0:13:06.000 how it really matters how much oil prices are for sentiment, 0:13:06.080 --> 0:13:08.680 for consumer sentiment, and that that will be potentially a 0:13:08.679 --> 0:13:11.720 disinflationary force in terms of their ability to keep on 0:13:11.800 --> 0:13:13.400 going out and buying things. 0:13:13.440 --> 0:13:15.520 Michael, making you catching up with the Richmond FED President 0:13:15.559 --> 0:13:17.160 Tom bulk in there just moments ago.