WEBVTT - Fed's Tom Barkin Talks Path for Economy, Tariff Uncertainty

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>We'll welcome our TV and radio audience worldwide. I'm Matt Miller,

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<v Speaker 2>alongside Katie Greifeld and Michael McKee, Bloomberg's international economics and

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<v Speaker 2>policy correspondent.

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<v Speaker 3>He is joining us now because we have.

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<v Speaker 2>An exclusive interview with the Richmond Fed President, Tom Bark

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<v Speaker 2>and Tom, great to have you on the program.

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<v Speaker 3>Thank you so much for joining us.

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<v Speaker 2>I have to start with the biggest question, which is

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<v Speaker 2>in terms of the data. We've heard from Bostic and

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<v Speaker 2>Cashkari that this data from Trump's trade war hasn't really

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<v Speaker 2>told us all that we need to know quite yet,

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<v Speaker 2>and maybe it won't until September.

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<v Speaker 3>What are you seeing in your district?

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<v Speaker 4>Well, I'll agree with you that the published data shows

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<v Speaker 4>an economy very much on the same trajectory that we've

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<v Speaker 4>been on for the last year or two. Low unemployment,

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<v Speaker 4>inflation settling toward target. There's a lot of questions about

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<v Speaker 4>what happens when these tariffs are imposed, but you know

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<v Speaker 4>how it is. There's a bunch of companies that advance.

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<v Speaker 3>Ordered their product.

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<v Speaker 4>They may have warned about price increases, but they haven't

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<v Speaker 4>yet passed on the prices. The customers may accept the

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<v Speaker 4>price increases or they may not, so we'll just have

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<v Speaker 4>to see how it plays out. I've been describing this

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<v Speaker 4>when I'm talking to businesses, which you know I do

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<v Speaker 4>every day. I've been describing this as driving through fog.

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<v Speaker 4>It's just very hard to drive when it's really foggy,

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<v Speaker 4>and businesses are afraid to accelerate because they don't know

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<v Speaker 4>what's around the next curve. And they're also afraid to

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<v Speaker 4>put on the gas because you don't want someone crashing

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<v Speaker 4>into you, and so by and large, they're pulling over

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<v Speaker 4>and putting on the hazards.

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<v Speaker 1>Well to that point that you're constantly speaking to businesses,

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<v Speaker 1>is anyone making big investments at this point or hiring decisions?

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<v Speaker 1>From your conversations, do you get the sense that firms

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<v Speaker 1>are closed to announcing layoffs.

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<v Speaker 4>On the hiring side, you're definitely not saying that. Lots

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<v Speaker 4>of hiring freezes, of lots of deferred hiring, and you

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<v Speaker 4>see that in the data as well. In terms of

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<v Speaker 4>investment decisions, investment moves that were already underway seem to

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<v Speaker 4>be continuing. I've heard very few cancelations, but some of

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<v Speaker 4>the big things that you might expect to happen when

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<v Speaker 4>the terms of trade change. I think people are still

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<v Speaker 4>waiting to get whatever they think is final in terms

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<v Speaker 4>of layoffs. You clearly hear and see about it in

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<v Speaker 4>the government sector and in those sectors related to government spending.

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<v Speaker 4>But outside of that, I just think people have the hazards.

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<v Speaker 5>On how long are companies telling you they can hold

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<v Speaker 5>out before they have to make some sort of decision

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<v Speaker 5>as to whether to go ahead and invest or to

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<v Speaker 5>cancel plans.

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<v Speaker 4>Well, I think people are pretty patient on the investment.

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<v Speaker 4>A lot of these are growth investments, and they're waiting

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<v Speaker 4>to see what the terms are. If you're thinking of

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<v Speaker 4>building a new facility somewhere, you kind of want to

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<v Speaker 4>know what the rules are before you before you build.

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<v Speaker 4>So I think there's a lot going in there. I

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<v Speaker 4>also don't think there's much case for canceling. Nothing's really

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<v Speaker 4>changed in the economic environment. You just have policy uncertainty,

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<v Speaker 4>and I think people are just going to wait policy

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<v Speaker 4>uncertainty out. They do think there's a light at the

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<v Speaker 4>end of the tunnel that there will be some certainty,

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<v Speaker 4>whether it's the tax bill or some of the trade terms.

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<v Speaker 3>But I think they're just waiting it out. Hey, Tom,

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<v Speaker 3>I was on Saturday.

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<v Speaker 2>I went down to Fredericksburg to purchase a used motorcycle,

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<v Speaker 2>and I drove it all the way back here to

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<v Speaker 2>New York through much of your district, I imagine through Washington,

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<v Speaker 2>d C.

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<v Speaker 3>Of course, and I was thinking.

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<v Speaker 2>About DOGE, the Department of Government Efficiency, the cuts that

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<v Speaker 2>DOGE made. Have they had any specific impact on the companies,

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<v Speaker 2>on the constituents in your district.

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<v Speaker 4>Well, first of all, congratulations on making it through the

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<v Speaker 4>Fredericksburg to DC ninety five district. That's a place that

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<v Speaker 4>I travel a lot, and it's not very easy to

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<v Speaker 4>travel it. There's no question that what we're seeing happen

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<v Speaker 4>in terms of government spending cuts is affecting, especially the

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<v Speaker 4>DC metro area part of my district. You see it

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<v Speaker 4>in both announced job losses. If you look at Challenger

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<v Speaker 4>job announcements in February and March, they were quite significant.

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<v Speaker 4>Particularly government. We see it in the week to week

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<v Speaker 4>governments spending numbers in retail spending, particularly discretion of retail spending.

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<v Speaker 4>In the DC metro area, job postings are down about

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<v Speaker 4>a third. We're even seeing listings come up in the

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<v Speaker 4>residential real estate area, so you're definitely seeing that impact

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<v Speaker 4>in DC Metro.

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<v Speaker 1>Also, I get your opinion on what's going on with

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<v Speaker 1>the relationship between hard and soft data. It's something that

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<v Speaker 1>we talk about on the show quite frequently because you

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<v Speaker 1>have the soft data suggesting that things look a lot

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<v Speaker 1>more stagflationary than the hard data actually shows. And I'm

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<v Speaker 1>wondering whether the sentiment data, the survey data that we receive,

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<v Speaker 1>is still a reliable indicator of what the hard data

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<v Speaker 1>will eventually reflect.

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<v Speaker 3>Well.

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<v Speaker 4>I separate business and consumer sentiment on that. I think

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<v Speaker 4>business sentiment is a very good indicator of what you're

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<v Speaker 4>seeing and what you're here. What you're seeing in the

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<v Speaker 4>business sentiment is the surgeon optimism that came anticipating pro

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<v Speaker 4>business policies after the election has backed off, and you

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<v Speaker 4>see hesitancy to invest, hesidency to hire, And that's the

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<v Speaker 4>same thing you're seeing, you know, as you talk to businesses,

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<v Speaker 4>and so I think that's very consistent by the way

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<v Speaker 4>we saw the same thing in twenty nineteen, and I

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<v Speaker 4>think it played out in a very similar way. A

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<v Speaker 4>consumer sentiment seen, which historically has been strongly correlated with

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<v Speaker 4>consumer spending, has not seemed to be for the last

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<v Speaker 4>two or three years. I think that's pretty simple. Inflation

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<v Speaker 4>is a big bugaboo in people's minds. As you know,

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<v Speaker 4>everybody hates inflation, and the prospect of inflation drives sentiment

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<v Speaker 4>down significantly, you know, And today's always on media environment

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<v Speaker 4>where people look at notifications all day long that notifications

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<v Speaker 4>they are seeing are tariff's tariffs, inflation, and they're anticipating that.

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<v Speaker 4>You can see that in terms of the consumer sentiments

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<v Speaker 4>expected inflation five or ten year, one year, five year,

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<v Speaker 4>ten or whatever, and that takes sentiment down. There's no

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<v Speaker 4>evidence yet that that inflation driven drop in sentiment drops spending,

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<v Speaker 4>and nothing I'm seeing in the real time spending data

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<v Speaker 4>suggests that spending is dropping. But that's why I say

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<v Speaker 4>there's the disconnect on the consumer side. Sentiment seems very

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<v Speaker 4>very clearly moving things on the business side, less clear

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<v Speaker 4>on the consumer side.

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<v Speaker 5>Tariff's tariffs, tariffs, as you mentioned, is what we've been

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<v Speaker 5>talking about for some months. But now we have the

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<v Speaker 5>budget bill on the horizon, the fiscal side of it.

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<v Speaker 5>What are people telling you in your district and you

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<v Speaker 5>have a lot of rural areas as well, about the

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<v Speaker 5>potential effects on the economy from the bill. Some see

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<v Speaker 5>stimulus from no tax on tips, no tax on overtime.

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<v Speaker 5>Maybe that's an inflation problem going forward, and others say

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<v Speaker 5>maybe there's a problem with consumer spending going forward because

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<v Speaker 5>people are losing income from Medicaid and other cuts. How

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<v Speaker 5>do you see that affecting the economy.

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<v Speaker 4>Well, I was in rural Virginia, as I was telling

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<v Speaker 4>you earlier last week, and we had a lot of

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<v Speaker 4>conversations about how they're saying policy. I don't think this

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<v Speaker 4>has reached the level of much focus in the small towns,

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<v Speaker 4>at least in my district. I think people are focused

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<v Speaker 4>on the basics the places people do. They worry about healthcare.

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<v Speaker 4>Rural healthcare is a pretty big issue in the small towns,

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<v Speaker 4>and people wonder about how any changes to healthcare is

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<v Speaker 4>going to affect rural hospitals. And I think people just

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<v Speaker 4>waiting to see where Washington lands on this.

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<v Speaker 2>We had a drop in GDP that surprised me last quarter.

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<v Speaker 2>I talked to the experts here at Bloomberg about it,

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<v Speaker 2>and they told me that's okay. It's because we were

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<v Speaker 2>pulling forward so much ahead of President Trump's tariffs, and

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<v Speaker 2>now that he's pushing those tariff dates back, I wonder

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<v Speaker 2>if you think companies and consumers are going to continue

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<v Speaker 2>to pull forward and bring so many imports in that

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<v Speaker 2>we get another big drop in GDP. Tom could we

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<v Speaker 2>have a technical recession because of this?

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<v Speaker 4>Well, so, the businesses who are facing these tariffs go

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<v Speaker 4>in one of two directions. There's some set of people

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<v Speaker 4>who pull forward, and you certainly saw that in pharmaceuticals

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<v Speaker 4>in the first quarter. Stockpile inventory is in advance of tariffs.

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<v Speaker 4>But there's another set that are actually pulling back and

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<v Speaker 4>saying and we saw that in China. If you look

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<v Speaker 4>at the shipments out of China, out of the ports,

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<v Speaker 4>and they're saying, look, I'm not taking this till I

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<v Speaker 4>see where it goes. Now we've got a different tarif

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<v Speaker 4>regime in China for some period of time, we're not

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<v Speaker 4>yet seeing much movement in terms of shipments out of China.

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<v Speaker 4>I think takes a few weeks to get that going.

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<v Speaker 4>And I just think we're going to see some back

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<v Speaker 4>and forth on this this quarter next quarter, and we

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<v Speaker 4>just have to get off to get the other side

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<v Speaker 4>of it again. It's part of why I say there's

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<v Speaker 4>so much fog here because you might say we had

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<v Speaker 4>a great consumer spending month in March because auto sales boomed,

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<v Speaker 4>or you might say that people bought their cars before

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<v Speaker 4>they saw price increases.

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<v Speaker 5>Well, as we wrap this up, when you look forward,

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<v Speaker 5>which part of the mandate do you think we'll see

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<v Speaker 5>an effect first on the inflation side or the employment side.

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<v Speaker 4>I'm more balanced than a lot of what you read.

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<v Speaker 4>I could describe you how some of these forces like

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<v Speaker 4>tariffs might be inflationary. I can describe to you how

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<v Speaker 4>other forces like lower gas prices might be disinflationary.

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<v Speaker 3>I can describe you how.

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<v Speaker 4>Less government spending might be less employment, and that has

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<v Speaker 4>issues on the employment side. I can also describe you

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<v Speaker 4>how people who haven't hired for eighteen months, if spending continues,

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<v Speaker 4>might need to start hiring. And so I'm waiting to

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<v Speaker 4>see what happens, all right.

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<v Speaker 1>A great conversation to start this week. Are big thanks

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<v Speaker 1>to Richmond FED President Tom Barkin and Bloomberg's Michael McKee.