Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe. Why isn't thal Joe.
Speaker 2: We're still at Jackson Hole. Yes, by the time this
Speaker 2: episode comes out, the dust will have settled. That's the
Speaker 2: entire event, and we will have gotten well. We already
Speaker 2: had the speech from FED chair Jerome pow Right, and
Speaker 2: this afternoon as we're recording, we're seeing market surging. Everyone,
Speaker 2: it seems, has interpreted this as pretty dubbish.
Speaker 3: Yeah, that's right, and along a Bloomberg had an interesting
Speaker 3: piece if it wasn't as dubvish as people think, but
Speaker 3: it felt duvish in the context of, you know, a
Speaker 3: recent chat with us in Goolsby. Recent he was concerned
Speaker 3: about he's starting to look at that inflation date a
Speaker 3: little bit more fell division the context of our recent
Speaker 3: episode with Kansas City Fed President Jeffrey Schmid, he too
Speaker 3: was talking about, how, you know, things are maybe still
Speaker 3: looking a little warmon could.
Speaker 2: Be talking about if you look at the Taylor rule,
Speaker 2: you know, you could argue maybe rates should be a
Speaker 2: little higher.
Speaker 3: Anyway, I think we should continue on our survey of
Speaker 3: as many FED presidents as we can.
Speaker 2: All right, well, we do have the perfect guests. On
Speaker 2: that note, a friend of the pod, Richmond FED President
Speaker 2: Tom Barkin. Welcome back. It's good to see you.
Speaker 4: Yeah, good to see you guys too.
Speaker 2: Thanks so much for doing this, taking time out of
Speaker 2: your you know, hiking and conferencing schedule, so we appreciate it.
Speaker 2: Why don't we just start with the obvious question, which
Speaker 2: is I guess you talked earlier this week that the
Speaker 2: balance between employment risks and inflation risks is really unclear
Speaker 2: at the moment. Pal seemed to air on the side
Speaker 2: of the labor market, right, he kind of chose to
Speaker 2: prioritize that. Do you think that's the right move?
Speaker 4: Well, as you said, I've been saying, I'm confused about everything.
Speaker 4: I'm confused about labor market and the inflation side, and
Speaker 4: I think there's lots of people who come up with
Speaker 4: different views of how to weigh the risks. Here's the
Speaker 4: interesting thing. We've been hearing from businesses for a year
Speaker 4: and a half that they haven't been hiring. We've been
Speaker 4: seeing in the number that they haven't been hiring. They
Speaker 4: also haven't been laying people off. And when we get
Speaker 4: into the job's numbers that kept coming in at one
Speaker 4: hundred and thirty thousand a month or one hundred and
Speaker 4: twenty thousand a month, that seems strange, but it was
Speaker 4: good news. I mean, there's nothing wrong with a lot
Speaker 4: of jobs. And so what we saw last month was
Speaker 4: a different jobs report with a job's revision that now
Speaker 4: sort of says, hey, we're growing at thirty five thousand
Speaker 4: jobs a month. That actually makes a little more intuitive
Speaker 4: sense to me given what I'm hearing in the marketplace.
Speaker 4: If you're not hiring, then where the new hires coming from.
Speaker 4: And by the way, we'll get a revision a QCW
Speaker 4: in September that probably will take those numbers down again.
Speaker 4: And so if you're dealing with one hundred and thirty
Speaker 4: thousand job market, that's a very different level of confidence
Speaker 4: than if you're dealing with a thirty five thousand or
Speaker 4: even maybe even a zero job growth market. And I
Speaker 4: think that's where the concern comes from. What holds you
Speaker 4: back from being overly concerned is the unemployment rate, which
Speaker 4: still is at four point two percent, perfectly really good
Speaker 4: unemployment rate. You know, at any time in any cycle,
Speaker 4: and so you know, how much how lucky do you feel,
Speaker 4: Deale feel? Did you feel in the jobs growth? How
Speaker 4: much do you feel in the unemployment rate? The gap
Speaker 4: between the two obviously is driven by we're not having
Speaker 4: net migration, you know, into the country the way that
Speaker 4: we used to. You could call that two million a year.
Speaker 4: My generation, the baby boomer baby boomers are aging out
Speaker 4: of the workforce. I'm not aging, nor am I out
Speaker 4: of the workforce, but my generation is. And that's maybe
Speaker 4: a million three people sixty five and older increase out
Speaker 4: of the workforce over the last three years per year.
Speaker 4: And then you know, this temporary protected status thing takes
Speaker 4: some more people out of the workforce. And so it's
Speaker 4: possible that you know, we're seeing your job growth and
Speaker 4: that's going to keep the unemployment rate steady. But you know,
Speaker 4: there's nothing wrong with being nervous about that. I think
Speaker 4: you also have to be us on the inflation side,
Speaker 4: and we weren't at two percent before all the tariff talk.
Speaker 4: All the tariff stuff's coming in. It's not hitting inflation
Speaker 4: nearly as much as some people thought, but people are
Speaker 4: still passing it on. You would have seen Walmart's earning
Speaker 4: support yesterday where they talked about it, or home Depot
Speaker 4: or you know, people are talking about No.
Speaker 2: Walmart basically said it's coming.
Speaker 4: It's coming now. It doesn't have to be as severe
Speaker 4: as you know people like to think. And we can
Speaker 4: talk about that if you want, but it's coming. So
Speaker 4: I like to say my tearo policy is really easy.
Speaker 4: Three quarters of the time. You know, when inflation's high
Speaker 4: and unemployment's low, raise rates, and when you have the
Speaker 4: opposite situation, lower rates. And you know, if inflation's low
Speaker 4: and unemployment's slow, you can spend a few more days
Speaker 4: at Jackson Hole. But if you're going to have risk
Speaker 4: on the inflation side and risk on the employment side,
Speaker 4: that's what it gets hard.
Speaker 3: Talk to us about your interpretation of Powell speech, because
Speaker 3: it does seem like actually there is no consensus on
Speaker 3: how quote Dovish it was the market surged. But when
Speaker 3: you heard it or when you read it, I don't
Speaker 3: know when you saw it. Whenever you when it, maybe
Speaker 3: do you get in advance, so you were you read
Speaker 3: it at the same time as we did, Like what
Speaker 3: was your read on it?
Speaker 4: So I think you guys are all incredibly talented and
Speaker 4: much more talent than I am, but at interpreting speeches,
Speaker 4: so uh.
Speaker 2: Believe it or not.
Speaker 4: I actually gave a speech last week and one of
Speaker 4: the FED commentators went through my last paragraph and compared
Speaker 4: it to my last paragraph before and said, see, Barkin
Speaker 4: has changed in these days. And I'm like, huh, that
Speaker 4: was really well done. I you know, I was even
Speaker 4: sophistical commentator.
Speaker 3: Was correct in the way that you actually yourself hadn't
Speaker 3: thought about.
Speaker 4: So so when you guys read these speeches, I mean,
Speaker 4: the commas matter, the sentences matter.
Speaker 3: That's really our call for what it's worth. That's our colleagues,
Speaker 3: y commas. But let's give it.
Speaker 4: Let's hear you and I And I'm sure Jay is
Speaker 4: very sophisticated in his team, so I'm sure they're also
Speaker 4: thinking about this. So I'm not saying people get real accidents.
Speaker 4: But when I read it, and when I heard it,
Speaker 4: I actually heard it live for the first time, so
Speaker 4: I didn't read it before it came out. It seemed
Speaker 4: like a perfectly down the middle speech to me. If
Speaker 4: you had asked me what the markets would have and
Speaker 4: I guess I would have imagined that they'd read it
Speaker 4: as modestly dubbish. It seems like I read it as
Speaker 4: more dubbish than I heard it. But what do I know.
Speaker 4: I mean, I'm just listened to the speech like everybody else.
Speaker 2: Well, I mean this kind of begs the question. But
Speaker 2: how could easily have just said, you know, we're data
Speaker 2: dependent and we're going to wait for the next CPI number,
Speaker 2: the next payrolls number. Instead he chose to really emphasize
Speaker 2: the labor side of the dual mandate. Why why is that?
Speaker 4: I mean you'd have to ask, you know, when he
Speaker 4: comes on the show.
Speaker 2: Ye, I know you'll have a lot of questions, tell
Speaker 2: him he should come on the show.
Speaker 4: I will say one thing that's odd about Jackson Hole
Speaker 4: every year is it's the period worry of the longest
Speaker 4: break between meeting right right and this time, not only
Speaker 4: do we have a long break between meetings, but you know,
Speaker 4: the day after or two days after his press conference,
Speaker 4: we got these big revisions on the job report. So
Speaker 4: I don't know, maybe you could imagine there was a
Speaker 4: trying to mark to market the from the press conference
Speaker 4: to hear I don't know. I mean, it's a he
Speaker 4: knows what he does.
Speaker 3: Something that came up in our conversation with Jeff Schmid
Speaker 3: was they said that, and I'm curious how there's sort
Speaker 3: of jobs with what you've been hearing from businesses. You know,
Speaker 3: when we talked to Mary Daily and Alaska a few
Speaker 3: weeks ago, she said, you know, the revisions made sense
Speaker 3: to me. Actually, look what you're saying, because actually this
Speaker 3: is fitting with the anecdotal commentary that I've been hearing,
Speaker 3: and intuitively, right post Liberation Day, lots of anxiety, uncertainty,
Speaker 3: it makes sense there'd be a hiring slowdown. However, something
Speaker 3: that Casey Fed President Schmid said was, yes, it fits,
Speaker 3: but well, the uncertainty is easing now. Tariffs are not
Speaker 3: as uncertain as they were in the middle of April
Speaker 3: by any stretch. Even though there's new headlines almost every day.
Speaker 3: There's nowhere near as much uncertainty. And then maybe that
Speaker 3: was the cycle low for the year, that sort of
Speaker 3: April May June July period. Does that seem plausible to
Speaker 3: you based on what you're seeing out there.
Speaker 4: Yeah, So I've been describing that as driving in the fog,
Speaker 4: and you know, I've been saying that when you're driving
Speaker 4: in the fog, it's hard to put your foot on
Speaker 4: the breath on the gas because you don't know what's
Speaker 4: around the next curve. And you don't want to put
Speaker 4: your foot in the brakes either because you don't know
Speaker 4: what someone behind you is going to run into you,
Speaker 4: so you pull over and put on the hazards. That's
Speaker 4: a money analogy I've been using for a few months.
Speaker 4: But but what I've been saying, you know, the last
Speaker 4: month is I think the fog is lifting, and I
Speaker 4: do think we've got you know what's happening on the
Speaker 4: immigration side, you know what's happening on the deregulation side,
Speaker 4: different sectors in different you have different points of view
Speaker 4: on that. We have a tax bill, so you know
Speaker 4: what that looks like, and people have a you know
Speaker 4: at least what the boundaries look like on tarifts. Now.
Speaker 4: I don't think they're ever going to be once set
Speaker 4: done and will know the rules for forever. I think
Speaker 4: it's a tool that is going to surface again and again.
Speaker 4: But I think people sort of know what that is.
Speaker 4: And so when I'm talking to businesses, it feels like
Speaker 4: it's shifting now that you know, I'm going to now
Speaker 4: torture the analogy because they think the road's bumpy, right,
Speaker 4: and so I still hear a lot of not hiring,
Speaker 4: not firing. I'm going to, you know, be a little
Speaker 4: cautious with my costs. I'm going to do it through attrition,
Speaker 4: not through layoffs. I still hear that. I've heard a
Speaker 4: few stories of leaning into investing, particularly supported by some
Speaker 4: of the depreciation stuff. You know, I've been waiting for
Speaker 4: this tax heading to pass. That have sertainty, but I
Speaker 4: wouldn't say not at scale, you know, modest amounts of it.
Speaker 4: The one place where you might be seeing this sentiment
Speaker 4: change is on the consumer side, and I've been hearing
Speaker 4: from the retailers I'm talking to and from the manufacturers
Speaker 4: I've talked to, of a lift in consumer spending starting
Speaker 4: in you know, end of June into July. If you
Speaker 4: look at the credit card data, you'll see a big
Speaker 4: increase in July, which is continued the first two weeks
Speaker 4: of August. It would make sense that a bunch of
Speaker 4: consumers who by the way, still have jobs, real wages
Speaker 4: are still up as inflation comes down, and the markets
Speaker 4: are obviously healthy, both asset valuations and houses or stock
Speaker 4: market all very healthy, that they might have taken a
Speaker 4: step back in the context of all the news in
Speaker 4: April and May, and maybe now they're coming back in
Speaker 4: so that that's the one place I'm starting to see.
Speaker 4: I'm moving. I'm very attentive. You know, we'll get the
Speaker 4: PC next week, very temped to what we're seeing. But
Speaker 4: you could imagine, you know, temporary air pocket is consumers
Speaker 4: sort of pulled back, worried, and you see this in
Speaker 4: the consumer sentiment data, that inflation was going to hit
Speaker 4: huge numbers and all of a sudden, you know, people
Speaker 4: are going to be unemployed and they were going to
Speaker 4: have issues. Now they're not seeing it. It's possible.
Speaker 2: Do you think that we're maybe getting a bit of
Speaker 2: a reacceleration in the economy at this point, because you
Speaker 2: look at retail sales they were very strong, as you
Speaker 2: point out, You look at the city Economic Surprise Index
Speaker 2: that's been ticking up, some of the regional surveys are
Speaker 2: starting to improve a little bit. Do you see that
Speaker 2: reacceleration impetus?
Speaker 4: You know, it's possible. Like I said, I sort of
Speaker 4: see the energy on the consumer side. We'll see how
Speaker 4: long it lasts, you know, I think you can call
Speaker 4: a reacceleration when you get there. I definitely am not
Speaker 4: talking to businesses who are talking about blowing out earnings.
Speaker 4: I don't. I don't hear one of those kind of accelerations.
Speaker 4: So I don't hear frothiness yet. But I am hearing
Speaker 4: some very positive vibes on the consumer spending side, which
Speaker 4: I'm pleased to hear.
Speaker 3: If inflation is warm, and maybe if there's upside risks
Speaker 3: still to inflation, why could there be more to it
Speaker 3: than just yeah, terriff, sorry, maybe, but like, could there
Speaker 3: be something more going on? And perhaps that consumer strength
Speaker 3: pretty large deficit still even with the revenue that's coming
Speaker 3: in from tariffs. Maybe someone like the it's been I
Speaker 3: don't know, what do you think is the story on inflation?
Speaker 3: How much is tariffs and how much is other stuff?
Speaker 4: Well, so I just think it takes a long time
Speaker 4: to get inflation back to two percent. If you go
Speaker 4: back and look at the Vulgar years, and of course
Speaker 4: he did stuff to the economy that was much more
Speaker 4: aggressive than what we did, and he of course he
Speaker 4: had inflation that was much more ingrained and didn't have
Speaker 4: an inflation target, but he took rates up a lot
Speaker 4: inflation came down a lot, but it didn't get to
Speaker 4: two percent. It was four, oh yeah, And you know,
Speaker 4: it sort of eked its way down from four to
Speaker 4: three and a half to three to two.
Speaker 3: And a half, and then throughout the eighties and nineties exactly.
Speaker 4: For twenty years until it sort of hit two and
Speaker 4: sort of starts sticking around too. So I give you
Speaker 4: that just for perspective, and you know, again from my experience,
Speaker 4: I'll tell you why that happens, which is people don't
Speaker 4: just immediately go back to the old number. You've got
Speaker 4: some amount of care to do wages and prices people
Speaker 4: who didn't raise it. People's expectations, I think are very
Speaker 4: significantly triggered by actual inflation. And so my old job,
Speaker 4: we had to raise prices every year, and we sort
Speaker 4: of thought about it, and a lot of times we
Speaker 4: raise price based on last year's inflation, and so it
Speaker 4: just there's some stickiness to it. And so what we've
Speaker 4: seen is very encouraging on the inflation numbers. They've gone
Speaker 4: from you know, seven at their peak down to you know,
Speaker 4: somewhere in the high twos. Maybe it'll tick up to
Speaker 4: the three now. And so I think that's one piece
Speaker 4: of it. Actual just take it's sticky. It takes a while.
Speaker 4: And then the second piece of it is, I do
Speaker 4: think you've got this tariff concern in there, and that
Speaker 4: people are passing on costs, and then people who don't
Speaker 4: even have the costs are using this as a cover
Speaker 4: to pass on costs.
Speaker 3: So just real quickly. Then, if there's all these factors,
Speaker 3: et cetera, why is there conversation about cutting rates, Or
Speaker 3: if there is conversation about cutting rates, how seriously should
Speaker 3: the should people be take those two percent commitment?
Speaker 4: Well, so there's calibration going on. So you've got unemployment
Speaker 4: that's low but maybe training. You've got inflation that's been
Speaker 4: coming down and maybe ticked up but maybe for one
Speaker 4: time reason. And you've got a neutral rate that is
Speaker 4: by all accounts lower than where we are, but lots
Speaker 4: of debate about is it just a little bit lower
Speaker 4: or is it significantly lower? And so I think those
Speaker 4: three things go together, and people just ask it, do
Speaker 4: you recalibrate to a different number in the context of this,
Speaker 4: or are we well positioned where we are?
Speaker 2: This discussion actually reminds me, what's your story for why
Speaker 2: inflation did come down in the post pandemic period. Is
Speaker 2: it the sort of immaculate disinflation explanation where the supply
Speaker 2: chain pressure has just started dissipating, or did the Fed's
Speaker 2: actions actually have a kind of sledgehammer effect here.
Speaker 4: I think it's in all of the above. I mean,
Speaker 4: if the FED doesn't act when people expect us to act,
Speaker 4: then I think that sort of unwinds expectations the way.
Speaker 4: That's not very helpful. On the other hand, you can't
Speaker 4: ignore that a lot of the supply constraints that we're
Speaker 4: driving prices up, commodity prices, ships backed up in harbor's chips,
Speaker 4: no in cars, people not at work. Those things also amilorated.
Speaker 4: We also had a really big immigration number for about
Speaker 4: two years. That meant, you know, the supply side jobs
Speaker 4: got filled a lot faster. It definitely released the pressure
Speaker 4: and a lot of things so supply help. Hopefully, the
Speaker 4: FED did its part and the combination of things brought
Speaker 4: it down.
Speaker 3: When we were in Alaska, we learned that there is
Speaker 3: a major furniture expo every year in your district in
Speaker 3: North Carolina. Also North Carolina. It's like, I think if
Speaker 3: people think of like regions that have lost from trade
Speaker 3: or regions that got hit really hard by free trade.
Speaker 3: I'm not even sure if it's true, but certainly that
Speaker 3: is the perception. It's actually it's your district.
Speaker 2: Well, this is one thing we learned by traveling with
Speaker 2: Tom and going on some of his trips to talk
Speaker 2: to local businesses. There is a sense that manufacturing in
Speaker 2: North Carolina has been hollowed out.
Speaker 3: Absolutely, it's a very short sense. But there's also cities
Speaker 3: in North Carolina that are some of the most dynamic
Speaker 3: in the entire country, especially over the last couple of decades.
Speaker 3: But I'm just curious right now, like tariffs in your district,
Speaker 3: what are you saying.
Speaker 4: So, no question, Historically, the textile industries, the furniture industries
Speaker 4: got hit very hard. If you look at the Carolinas though,
Speaker 4: and you took it the last twenty five years, you'd
Speaker 4: say there's also been a lot of foreign based manufacturers
Speaker 4: that have put manufacturing sites. I'm thinking of Greenville, South Carolina,
Speaker 4: Spartanburg where I was last week, where you've got BMW
Speaker 4: and big auto manufacturers you know, and their whole supply
Speaker 4: chains coming into town. You know what we hear, right
Speaker 4: now is it's very different by sector you're in, and
Speaker 4: it's very different by your position in that sector. So
Speaker 4: there are a lot of people who manufacture in South
Speaker 4: and South and North Carolina, but they source abroad and
Speaker 4: they're very worried about their costs. Think of the big
Speaker 4: auto manufacturers. There's a lot of people who manufacture in
Speaker 4: North Carolina and they're one hundred percent American made, and
Speaker 4: they think this is the greatest thing in the world
Speaker 4: because they'll get protection for their sectors. Or the people
Speaker 4: on the other side who've been you know, putting low costs,
Speaker 4: they're going to get So it's very very dependent.
Speaker 2: On where you say, well, speaking of you know, specific
Speaker 2: sectors potentially benefiting. There are loads of tariff headlines still
Speaker 2: coming in, but one of them that caught my eye
Speaker 2: was Trump saying that he was going to start a
Speaker 2: furniture tariff investigation with a view to setting tariffs on
Speaker 2: furniture imports into the US, specifically to help North Carolina.
Speaker 2: What's your immediate reaction when you see a headline like that.
Speaker 4: Well, we've been seeing a lot of headlines, you know, Yeah,
Speaker 4: I know on the tariffs thing. So first thing I
Speaker 4: downed is I tried not to serve headlines too much.
Speaker 4: We'll see what tariffs get applied on what industries, with
Speaker 4: what duration and what products, and that's what a lot
Speaker 4: of the manufacturers I talked to also do. I'm sure
Speaker 4: the people who manufacture furniture and North Calina would be
Speaker 4: very supportive. There aren't actually all that many. A lot
Speaker 4: of jobs have been lost, and I think if people
Speaker 4: start to consider bringing jobs back, the thing you hear about,
Speaker 4: you know, over and over and over again, is just
Speaker 4: availability of workforce and the cost of workforce. You know,
Speaker 4: the jobs that I think are most likely to come
Speaker 4: back are ones that are the least dependent on workforce,
Speaker 4: or have the highest skilled workforce, or have high paid workforce.
Speaker 4: And a lot of these jobs have gone to place
Speaker 4: with very low cost workforces. And I don't know the
Speaker 4: level of tariff that one would need to get to to,
Speaker 4: you know, bring those jobs back, but it's a pretty
Speaker 4: significant number. The other thing that's really not talked about
Speaker 4: much that I just think is interesting. I was in Hickory,
Speaker 4: which is a factory town. I talked to a lot
Speaker 4: of furniture manufacturers there, and they're looking for workers. This
Speaker 4: is during the COVID and they were, you know, having
Speaker 4: a very strong demand cycle. But I went to community college.
Speaker 4: I talked to a bunch of workers there and I said, well,
Speaker 4: you guys trained to get in the furniture industry, and
Speaker 4: several of them told me, you know, my dad was
Speaker 4: in there and got laid off, and so we're not
Speaker 4: going there. You know, the thought that people are waiting
Speaker 4: to go back into the jobs to build the matters
Speaker 4: a lot too. And so as we bring jobs back
Speaker 4: in the country, which would be great, and I hope
Speaker 4: we do, making sure there's stable jobs and their jobs
Speaker 4: that are going to be around for a generation is
Speaker 4: very important, I think in terms of getting workers into
Speaker 4: the jobs.
Speaker 3: We are recording this today that Chairman Powell gave his
Speaker 3: final speech as FED chair at Jackson Hole. It was
Speaker 3: a policy speech and he did not talk about FED
Speaker 3: independence and the attacks on FED independence that are coming
Speaker 3: from the White House and so forth, the political pressure
Speaker 3: that the FED has been coming under. When you think
Speaker 3: about inflation, maybe not in the short term, maybe not
Speaker 3: you know, the latest PPI reading or whatever, but when
Speaker 3: you think about like the long term, like the ability
Speaker 3: of the FED to maintain that two percent inflation. Do
Speaker 3: you think about, like, well, will the US political system
Speaker 3: have the sort of stomach to preserve a FED as
Speaker 3: an independent agentic force in the economy.
Speaker 4: Well, so we've all relearned something in the last five
Speaker 4: years that we didn't know we need to relearn, which
Speaker 4: was how much we hate inflation. And inflation, you know,
Speaker 4: it feels unfair. You get a raise and then you know,
Speaker 4: the money gets spent somewhere else. It creates uncertainty, and frankly,
Speaker 4: it's just exhausting. It's exhausting to deal with people who
Speaker 4: are trying to raise your prices or to shop around
Speaker 4: for better prices, or deal with you know, vendors. And so,
Speaker 4: if there's one thing I think the American people have
Speaker 4: aligned on over the last five years, it's just how
Speaker 4: much we hate inflation. And you know, there's been a
Speaker 4: lot of work done in a lot of countries in
Speaker 4: terms of what's the best way to get inflation on control?
Speaker 4: And an independent central bank is the answer to that question.
Speaker 4: The research is very powerful.
Speaker 3: Do you worry that like the that the that over
Speaker 3: the medium term, that the sort of political system that
Speaker 3: has allowed for an entity like the FED to exist
Speaker 3: and operate outside of the electoral cycle is understressed.
Speaker 4: I hope and I expect that this country is going
Speaker 4: to recognize that independent central bank is the best way
Speaker 4: to get into control the thing which we hate the most.
Speaker 2: Just on the people hate inflation point, which I think
Speaker 2: is a very salient idea. You've been very vocal on
Speaker 2: the idea of like companies having learned the inflation playbook, right,
Speaker 2: like they tested price elasticity during the last round of
Speaker 2: high inflation, and you know, maybe maybe there's more of
Speaker 2: an impulse this time around to raise prices to offset
Speaker 2: either higher input costs or higher tariff costs. Are you
Speaker 2: still sort of on the inflationary impulse side. Do you
Speaker 2: think that residual experience still matters.
Speaker 4: I definitely think the residual experience matters. When I talk
Speaker 4: to companies about the tariffs that hit them. The first
Speaker 4: thing here is going to pass it on to my customers.
Speaker 4: But I also think this residual experience matters on the
Speaker 4: customer side. I guess I just remind everybody that this
Speaker 4: isn't twenty twenty two. In twenty twenty two, a bunch
Speaker 4: of supply costs hit a bunch of companies that passed
Speaker 4: it on and the people who received them. You and
Speaker 4: I we hadn't spent money for a year and a
Speaker 4: half with COVID, We'd gotten stimulus payments, our assets were
Speaker 4: quite frothy and highly valued. We were ready for revenge
Speaker 4: spending spent. And that's twenty twenty two. We're not in
Speaker 4: twenty twenty two, when, by the way, we also had
Speaker 4: accommodateive monetary policy. We're in twenty twenty five. Here we
Speaker 4: have restrictive monetary policy. And in addition, you have consumers
Speaker 4: who are already trading down. And so I've said earlier,
Speaker 4: they've got money, but they're not dying to spend it.
Speaker 4: And what you hear is normal price retailer to value, retailer,
Speaker 4: beef to chicken, vacationist staycation, that's what you're hearing. And
Speaker 4: people in private label is growing, and so I think
Speaker 4: those customers are not going to accept those price increases
Speaker 4: the same way they have. And it's sort of Milton
Speaker 4: friedmany a little bit. If there's not more money in
Speaker 4: the system, how are you going to get inflation? And
Speaker 4: you could argue there's some money in the system and
Speaker 4: you'll get some inflation. I believe that, but I don't
Speaker 4: think you're going to get anywhere near the kind of
Speaker 4: stuff that people imagine, because this company that's now learned
Speaker 4: how to pass on prices is going to meet a
Speaker 4: consumer who's ready to resist it.
Speaker 2: You mentioned restrictiveness just then, and this is something that
Speaker 2: Pal also said in the speech today. He said, you know,
Speaker 2: rates are still restrictive, I think he said, albeit modestly so.
Speaker 2: But when I look at stocks at all time highs
Speaker 2: and credit spreads, you know, basically thirty year lows financial conditions,
Speaker 2: things don't seem all that restrictive. If you look specifically
Speaker 2: at the market. How is the FED sort of coming
Speaker 2: to the conclusion about the relation of benchmark rates here
Speaker 2: or the.
Speaker 4: Character As you can tell from the SEP. Different people
Speaker 4: have different models. Of course, the model that we use
Speaker 4: in Richmond, you know, has a lot to do with
Speaker 4: the impact of rates on the economy, and so you know,
Speaker 4: you can see what rates are and you can lag
Speaker 4: it and look at you later and see what the
Speaker 4: impact is. One thing I like to look at is
Speaker 4: nominal consumption. Nominal consumption was quite elevated during the pandemic.
Speaker 4: We raised rates and it came down still at a
Speaker 4: decent level. It's been sort of five and a half
Speaker 4: percent until the last couple of months, but it sort
Speaker 4: of seems to have come off that in the last
Speaker 4: month of two. We'll see what the more recent data is.
Speaker 4: But that nominal consumption is a great way to look
Speaker 4: at it because it just says what's happening rates to
Speaker 4: what people are doing in the economy. I do agree
Speaker 4: there are lots of other factors that affect dynamis in
Speaker 4: the economy, and if the market's frothy, a thing we
Speaker 4: don't control, that's also part of it. But in the
Speaker 4: part we control, I think you can see it by
Speaker 4: its works.
Speaker 3: I think I just have one more question for you,
Speaker 3: And I just feel like, maybe because you talk to
Speaker 3: businesses so much, maybe you have some fresh insight on this.
Speaker 3: Do you hear much about electricity prices in your conversations
Speaker 3: these days? Because I feel like there's starting to be
Speaker 3: in the news and the strain on the grid, and
Speaker 3: but for whatever reason, how is that you're hearing much
Speaker 3: about that?
Speaker 4: A lot of concern about electricity availability? Okay, you know,
Speaker 4: are we going to have an electricity to power all
Speaker 4: the AI and all the data centers are going up.
Speaker 4: You know there are states, you know, Virginia's one where
Speaker 4: data centers are quite right, and so you do hear
Speaker 4: a little bit of public concern about what's this all
Speaker 4: going to mean? But just a reminder that electricity prices
Speaker 4: tend to lag significantly. They got to go through rate processes.
Speaker 4: Every state is different, and so you know, I'm not
Speaker 4: sure that's hitting the consumer public. I do hear lots
Speaker 4: of I'll just call it local infrastructure funding HOSS being
Speaker 4: passed on to consumers and consumers making trade offs in
Speaker 4: that context. So you know, there was a big water
Speaker 4: increase in the town I was in in Maryland a
Speaker 4: month ago, and a lot of conversations about people not
Speaker 4: paying their water bill. Because so you do hear it
Speaker 4: more broadly, but I wouldn't say that the price is
Speaker 4: yet hit.
Speaker 2: Okay, So I'm going to ask a sort of on
Speaker 2: the ground color question. But when you think about this
Speaker 2: Jackson Hole and you think about maybe last year is
Speaker 2: Jackson Hole in twenty twenty four, can you compare and
Speaker 2: contrast the vibes? How are they different?
Speaker 4: This is my eighth one. Two of them were virtual.
Speaker 4: They're not nearly as good when they're virtual no fish,
Speaker 4: it's a nice picture.
Speaker 1: I'd say.
Speaker 4: In general, the vibe is pretty much the same every time.
Speaker 4: I mean, I really like them because there's a they
Speaker 4: turn over the population a little, you know, and so
Speaker 4: they are new.
Speaker 2: There's new guests every time.
Speaker 4: The academics, I haven't met new leaders. I haven't met,
Speaker 4: so that's kind of fun for me, and I get that,
Speaker 4: but I'm not sure the vibe changes all that much.
Speaker 4: It's a it's a real privilege to be invited to
Speaker 4: like this, and I enjoy it. I don't spend a
Speaker 4: lot of time thinking about the vibe. The vibes exactly all.
Speaker 2: Right, Tom Barkin, thank you so much for coming back
Speaker 2: on all thoughts.
Speaker 4: Really appreciate it, and I always appreciate being with you things.
Speaker 3: Thank you so much.
Speaker 2: Joe. You know, I have some furniture from North Carolina.
Speaker 2: It's really good quality.
Speaker 3: Maybe maybe in North Carolina, just imported through the port
Speaker 3: or the shows.
Speaker 2: No, actually made in North Carolina. And I know that
Speaker 2: because it's vintage, so it was probably back when the
Speaker 2: furniture industry was a little bit bigger there.
Speaker 3: I do think like did North Carolina. I mean, it's
Speaker 3: a long standing debate. Some of the biggest boom cities
Speaker 3: of the twenty and twenty tens were like you know,
Speaker 3: Durham and all those places, et cetera. You know, it's
Speaker 3: still like going back to Charlotte. Charlotte was huge booms,
Speaker 3: all the bank stuff there. Like you think about the
Speaker 3: last twenty five years, this is the area that we
Speaker 3: think is like most quote hollowed out, etc. It's also
Speaker 3: like one of the fastest growing. Here is the whole
Speaker 3: is it complete? Even the past is complicated. Hindsight is
Speaker 3: not twenty twenty.
Speaker 2: Yeah, and I think complication is sort of Complication and
Speaker 2: uncertainty are the big buzzwords of this conference. Clearly, like
Speaker 2: we hear it over and over again that there are
Speaker 2: risks on both the employment side of the mandate and
Speaker 2: the price side of the mandate, and central bankers basically
Speaker 2: have to make like a tough choice over which one
Speaker 2: they're going to concentrate on. I did think it was
Speaker 2: interesting that Tom mentioned that he read Pal's speech is
Speaker 2: more down the middle than perhaps the market did. No.
Speaker 3: I thought that was interesting too. I like the fog
Speaker 3: analogy that you actually don't want to break too much
Speaker 3: of the fawity fog either because the car behind you
Speaker 3: might not react in time. That that was really good.
Speaker 3: I also liked the part about how three quarters of
Speaker 3: the time vigg as central banker is really easy because
Speaker 3: either you hike or you cut or you go on
Speaker 3: a hike in Wildman the at the fourth time, like
Speaker 3: the fear of stagflation, Yeah, right, that's what that's what
Speaker 3: that forth. So here's like, this is that fourth time? Now,
Speaker 3: how persistent will it be with it? But the basic
Speaker 3: like what we're talking about in all these conversations, what
Speaker 3: we're talking about is this building anxiety about stagflation.
Speaker 2: It's stagflation combined with really difficult to predict timelines for
Speaker 2: exactly when it materializes. Right, Like that also seems to
Speaker 2: be a complicating factor. Okay, well on that note, shall
Speaker 2: we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the aud Lots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway
Speaker 2: and I'm Jill Wassenthal.
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