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Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Aloway

and I'm Joe Weisenthal.

Joe, we are still at Jackson Hole.

Yes. By the time this episode comes out, the dust will have settled over the entire event and we will have gotten well, we already had the speech from Fed Chair Jerome Pal, right? And this afternoon, as we're recording, we're seeing markets surging. Um, everyone, it seems, has interpreted this as pretty dovish.

Yeah, that's right. Ann Wong at Bloomberg had an interesting piece. Well, maybe it wasn't as dovish as people think, but

it felt dovish in the context of, you know, a recent chat with Austin Goulby recent he was concerned about he's starting to look at that inflation data a little bit more. Felt dobish in the context of our recent episode with Kansas City Fed President Jeffrey Schmidt. He too was talking about how, you know, things are maybe still looking a little warm on

you could be talking about hikes. If you look at the Taylor rule, you know, you could argue maybe rates should be a little higher. Anyway, I think we should continue on our our survey of as many Fed presidents as we can.

All right. Uh well, we do have the perfect guest. On that note, a friend of the pod, Richmond Fed President Tom Barkin. Welcome back. It's good to see you.

Yeah, good to see you guys, too.

Thanks so much for doing this, taking time out of your, you know, hiking and conferencing schedule. So, we appreciate it. Why don't we just start with the obvious question which is I I guess you talked earlier this week that the balance between employment risks and inflation risks is really unclear at the moment. Pal seemed to heir on the side of the labor market, right? He kind of chose to prioritize that. Do you think that's the right move?

Well, as you said, I've been saying I'm confused about everything. I'm confused about the labor market and the and the inflation side. And I think there's lots of people who come up with different views of how to weigh the risks. Here's the interesting thing. We've been hearing from uh businesses for a year and a half that they haven't been hiring. We've been seeing in the number that they haven't been hiring. They also haven't been laying people off. And when we get into the jobs numbers that kept coming in at 130,000 a month or 120,000 a month, that seemed strange, but it was good news. I mean, there's nothing wrong with a lot of jobs. And so what we saw last month was a different jobs report with a jobs revision that now sort of says, "Hey, we're growing at 35,000 jobs a month." That actually makes a little more intuitive sense to me uh given what I'm hearing in the marketplace. If you're not hiring, then where are the new hires coming from? And by the way, we'll get a revision a QCW in September that probably will take those numbers down again. And so if you're dealing with a 130,000 job market, that's a very different level of confidence than if you're dealing with a 35,000 or even maybe even a zero uh job growth market. And I think that's where the concern comes from. What holds you back from being overly concerned is the unemployment rate, which still is at 4.2%.

Perfectly really good unemployment rate, you know, at any time in any cycle. And so you know, how much how lucky do you feel D? Did you feel in the jobs growth? How much do you feel in the unemployment rate? The gap between the two obviously is driven by we're not having net migration, you know, into the country the way that we used to. You could call that 2 million uh a year. My generation, the baby boomer is baby boomers are aging out of the workforce. I'm not aging nor am I out of the workforce, but my generation is. And that's maybe a million3 people 65 and older increase out of the workforce over the last 3 years per year. And then, you know, this temporary protected status thing takes some more people out of the workforce. And so it's possible that, you know, we're seeing zero job growth and that's going to keep the unemployment rate steady. But, you know, there's nothing wrong with being nervous about that. I think you also have to be nervous on the inflation side. And we weren't at 2% before all the tariff talk. All the tariff stuff's coming in. It's not hitting inflation nearly as much as some people thought, but people are still passing it on. You would have seen Walmart's earnings report yesterday where they talked about it or Home Depot or, you know, people are talking about

Yeah. Walmart basically said it's coming. It's coming. Now, it doesn't have to be as severe as, you know, people like to think, and we can talk about that if you want, but it's coming. So, I like to say monetary policy is really easy threequarters of the time. You know, when uh inflation's high and unemployment's low, raise rates. And when you have the opposite situation, lower rates. And you know, if inflation's low and unemployment's low, you can spend a few more days at Jackson Hole. But if you're going to have risk on the inflation side and risk on the employment side, that's when it gets hard. Talk to us about your interpretation of Powell's speech because it does seem like actually there is not consensus and how quote dovish it was the market surged but when you heard it or when you read it I don't know when you saw it whenever you when it maybe do you get it in advance I'm just curv so you were you read it at the same time uh as we did like what was your read on it

so I think you guys are all incredibly talented and much more talented than I am at interpreting speeches

so uh come on

he's being very diplomatic believe it or Not I actually gave a speech last week and one of the Fed commentators went through my last paragraph and compared it to my last paragraph before and said see Barkin has changed in these ways. I'm like huh that was really well done. I I you know I was even sophisticated.

So the commentator was correct in a way that you actually yourself thought about respect.

So um so when you guys read these speeches I mean the commas matter the sentences matter. That's really our call. For what it's worth, that's our colleagues who are doing the commas. But let's give us let's hear your team.

And I and I'm sure Jay's very sophisticated in his team. So I'm sure they're also thinking about that. So I'm not saying people get no accidents.

But when I read it and when I heard I actually heard it live for the first time, so I didn't read it before it came out.

It seemed like a perfectly downthe-middle speech to me. If you would asked me what the markets would have done, I guess I would have imagined that they'd read it as modestly dovish. It seemed like I read it as more dovish than I heard it. But what do I know? I mean, I'm just uh listening to the speech like everybody else. Well, I mean, this kind of begs the question, but Pal could easily have just said, you know, we're data dependent and we're going to wait for the next CPI number, the next payrolls number. Instead, he chose to really emphasize the labor side of the dual mandate. Why? Why is that?

I mean, you'd have to ask, you know, him when he comes on the show. I know you'll have a lot of questions for him on that.

Tell him he should come on the show.

I will say one thing that's odd about Jackson Hole every year is it's the period where we have the longest break between me and

Right. Right.

And this time, not only do we have a long break between meetings, but you know, the day after or two days after his press conference, we got these big revisions on the job report. So, I don't know, maybe you could imagine there was a trying to mark to market the from the press conference to hear. I don't know. I mean, it's uh he knows what he does.

Something that came up in our conversation with Jeff Schmid was this idea that, and I'm curious how this sort of jibes with um what you've been hearing from businesses. You know, when we talked to Mary Daly in Alaska a few weeks ago, she said, you know, the revisions made sense to me actually kind of like what you're saying because actually this is fitting with the anecdotal commentary that I've been hearing that and intuitively right post liberation day, lots of anxiety, uncertainty. Yeah, it makes sense. There'd be a hiring slowdown. However, something that uh Casey Fed President Schmid said was, "Yes, it fits, but well, the uncertainty is easing now. tariffs are not as uncertain as they were in the middle of April by any stretch even though there's new headlines almost every day. There's nowhere near as much uncertainty and then maybe that was the cycle low for the year that sort of April, May, June, July period. Does that seem plausible to you based on what you're seeing out there?

Yeah. So, I've been describing that as driving in the fog. Um, and you know, I've been saying that when you're driving in the fog, it's hard to put your foot on the bra on the gas because you don't know what's around the next curve. And you don't want to put your foot on the brakes either because you don't know what someone behind you is going to run into you. So, you pull over and put on the hazards. That's a a money analogy I've been using for a few months. But, but what I've been saying, you know, the last uh month is I think the fog is lifting.

And I do think we've got, you know, what's happening on the immigration side, you know, what's happening on the deregulation side. different sectors in different you have different points of view on that. We have a tax bill, so you know what that looks like. And people have a, you know, at least what the boundaries look like on tariffs. Now, I don't think they're ever going to be once set, done, and we'll know the rules for forever. I think it's a tool that is going to surface again and again. But I think people sort of know what that is. And so when I'm talking to businesses, it feels like it's shifting now that, you know, I'm going to now torture the analogy because they think the road's bumpy, right? And so I still hear a lot of not hiring, not firing. I'm gonna, you know, be a little cautious with my cost. I'm going to do it through attrition, not through layoffs. I still hear that. I've heard a few stories of leaning into investing, particularly supported by some of the depreciation stuff. You know, I've been waiting for this tax thing to pass, so I have certainly, but I wouldn't say not at scale, you know, modest amounts of it.

The one place where you might be seeing the sentiment change is on the consumer side. And I've been hearing from the retailers I'm talking to and from the manufacturers I've talked to of a lift in consumer spending starting in, you know, end of June into July. If you look at the credit card data, you'll see a big increase in July, which has continued the first two weeks of August. It would make sense that a bunch of consumers who by the way still have jobs,

real wages are still up as inflation comes down and the markets are obviously healthy. Both asset valuations and houses or stock market all very healthy that that they might have taken a step back in the context of all the news in April and May and maybe now they're coming back in. So that that's the one place I'm starting to see movement. I'm I'm very attentive. You know, we'll get the PCE next week. Very attentive to what we're seeing. or not. You could imagine, you know, a temporary air pocket as consumers sort of pulled back worried and you see this in the consumer sentiment data that inflation was going to hit huge numbers and all of a sudden, you know, people were going to be unemployed and they were going to have issues and now they're not seeing it. It's possible.

Do you think that we're maybe getting a bit of a reaceleration in the economy at this point? Because you look at retail sales, they were very strong as you point out. You look at the city economic surprise index that's been ticking up. Some of the regional surveys are starting to improve a little bit. Do you see that reaceleration impetus?

You know, it's possible. Like I said, I sort of see the energy on the consumer side. We'll see how long it lasts. You know, I think you can call a reaceleration when you get there. I definitely am not talking to businesses who are talking about blowing out earnings, and I I don't I don't hear one of those kind of accelerations. So, I don't hear frothiness

uh yet, but I am hearing some very positive vibes on the consumer spending side, which I'm pleased to hear. If inflation is warm and maybe if there's upside risk still to inflation, why could there be more to it than just yeah tariffs are maybe but like could there be something more going on and perhaps that consumer strength pretty large deficit still even with the revenue that's coming in from tariffs

maybe someone like the spend I don't know what do you think is the story on inflation how much is tariffs and how much is other stuff

well so I just think it takes a long time to get inflation back to 2% if you go back and look at the Vulkar years. And of course, he did stuff to the economy that was much more aggressive than what we did. And he of course he had inflation that was much more ingrained and didn't have an inflation target, but he took rates up a lot. Inflation came down a lot, but it didn't get to 2%. It was four.

Oh yeah. Yeah.

And you know, it sort of eaked its way down from four to three and a half to three to two and a half and then

throughout the 80s and 90s.

Exactly. For 20 years until it sort of hit two and sort of started sticking around two.

So I give you that just for perspective. And you know, again, from my experience, I'll tell you why that happens, which is people don't just immediately go back to the old number. You've got some amount of catch-up to do wages and prices. People who didn't raise it. People's expectations, I think, are are very significantly triggered by actual inflation. And so, my old job, we had to raise prices every year, and we sort of thought about it, and a lot of times we raise price based on last year's inflation. And so, it just there's some stickiness to it. And so what we've seen is very encouraging on the inflation numbers. They've gone from, you know, seven at their peak down to, you know, somewhere in the high twos. Maybe it'll tick up to the three now. And so I think that's one piece of it. Actual just take it's sticky. It takes a while. And then the second piece of it is I do think you've got this tariff concern in there and that people are passing on costs and then people who don't even have the costs are using this as a a cover to pass on cost.

So just real quickly then if there's all these factors etc. Why is there conversation about cutting rates? Or if there is conversation about cutting rates, how seriously should the should people be t take the 2% commitment?

Well, so there's calibration going on. So you've got unemployment that's low, but maybe trending up. You've got inflation that's been coming down

and maybe ticked up, but maybe for one-time reasons, and you've got, okay, a a neutral rate that is by all accounts lower than where we are, but lots of debate about is it just a little bit lower or is it significantly lower? And so I think those three things go together. And people just ask it do you recalibrate to a different number in the context of this or you know are we are we well positioned where we are.

This discussion actually reminds me what's your story for why inflation did come down in the post-pandemic period. Is it the sort of immaculate disinflation explanation where the supply chain pressures just started dissipating or did the the Fed's actions actually have you know a kind of sledgehammer effect here?

I think it's an all of the above. I mean, if the Fed doesn't act when people expect us to act, then I think that sort of unwinds expectations in a way that's not very helpful. On the other hand, you can't ignore that a lot of the supply constraints that were driving prices up, commodity prices, ships backed up in harbors, chips not in cars, people not at work, those things also ameliorated. We also had a really big immigration uh number for about two years. That meant, you know, the supply side, the jobs got filled a lot faster. it, you know, definitely released the pressure on a lot of things. So, supply helped. Hopefully, the Fed did its part and the combination of those things brought it down.

When we were in Alaska, we learned that there is a major furniture expo every year in your district in uh in North Carolina. Also, North Carolina is like I think if people think of like regions that have lost from trade or regions that got hit really hard by free trade, I'm not even sure if it's true, but certainly that is the perception. It's actually it's your district.

Well, this is one thing we learned by traveling with Tom and going on some of his trips to talk to local businesses. There is a sense that manufacturing in North Carolina has been hollowed out

there. Absolutely is a very strong sense. But there's also cities in North Carolina that are some of the most dynamic in the entire country, especially over the last couple of decades. But I'm just curious right now like tariffs in your district, what are you seeing?

So, um, no question historically the textile industries, the furniture industries got hit very hard. If you look at the Carolinas though and you took the last 25 years, you'd say there's also been a lot of foreignbased manufacturers that have put manufacturing sites. I'm thinking of Greenville, South Carolina, Spartanberg, where I was uh you last week, where you've got BMW and big auto manufacturers, you know, and their whole supply chains coming into town. You know, what we hear right now is it's very different by sector you're in. Uh and it's very different by your position in that sector. So, there are a lot of people who manufacture in south in South and North Carolina, but they source abroad and they're very worried about their cost. Think of the big auto manufacturers. There's a lot of people who manufacture in North Carolina and they're 100% Americanmade and they think this is the greatest thing in the world because they'll get protection for their sectors or the people on the other side who've been you know putting low cost they're going to get. So it's very very dependent on where you sit. Well, speaking of, you know, specific sectors potentially benefiting, there are loads of tariff headlines still coming in, but one of them that caught my eye was Trump saying that he was going to start a furniture tariff investigation with a view to setting tariffs on furniture imports into the US specifically to help North Carolina. What's your immediate reaction when you see a headline like that?

Well, we've been seeing a lot of headlines, you know, on the tariffs thing. So I I first thing I don't do is I try not to surf headlines too much. We'll see what tariffs get applied on what industries, with what duration, on what products, and that's what a lot of the manufacturers I talk to also do. I'm sure the people who manufacture furniture in North Carolina would be uh very supportive. There aren't actually all that many. A lot of jobs have been lost. And I think if people start to consider bringing jobs back, the thing you hear about, you know, over and over and over again is just availability of workforce and the cost of workforce. You know, the jobs that I think are most likely to come back are ones that are the least dependent on workforce or have the highest skilled workforce or have high paid, you know, workforce. And a lot of these jobs have gone to places with very lowcost workforces. And I don't know the level of tariff that one would need to get to to, you know, bring those jobs back. But it's a pretty significant uh number. The other thing that's really not talked about much that I just think is interesting, I was in Hickory, which is a factory town. I talked to a lot of furniture manufacturers there and they're looking for workers. This is during the co and they were, you know, having a very strong uh demand cycle.

But I I went to a community college. I talked to a bunch of workers there. And I said, "Well, you guys training to get in the furniture industry." And several of them told me, you know, my dad was in there and got laid off and so we're not going there. you know, the thought that people are waiting to go back into the job stability matters a lot too. And so as we bring jobs back in the country, which would be great and I hope we do, making sure they're stable jobs and they're jobs that are going to be around for a generation is very important, I think, in terms of getting workers into the jobs. We are recording this the day that uh Chairman Powell gave his final speech as Fed chair at Jackson Hall. It was a policy speech and he did not talk about

Fed independence and the attacks on Fed independence that are coming from the White House and so forth or the pro the political pressure that the Fed has been coming under. when you think about inflation, maybe not in the short term, maybe not, you know, the latest PPI reading or whatever, but when you think about like the long-term like the ability of the Fed to maintain that 2% inflation, do you think about like well will the US political system have the sort of stomach to preserve a Fed as a independent agentic force in the economy?

Well, so we've all relearned something in the last 5 years that we didn't know we needed to relearn, which was how much we hate inflation.

Yeah.

And inflation, you know, it feels unfair. You get a raise and then, you know, the money gets spent somewhere else. It's creates uncertainty. And frankly, it's just exhausting. It's exhausting to deal with people who are trying to raise your prices or to shop around for better prices or deal with, you know, uh, vendors. And so, if there's one thing I think the American people have aligned on over the last 5 years, it's just how much we hate inflation. And you know there's been a lot of work done uh in a lot of countries in terms of what's the best way to get inflation under control in an independent central bank is the answer to that question. The research is is very powerful.

But do you worry that like the that the that over the medium term that the sort of political system that has allowed for an entity like the Fed to exist and operate outside of the electoral cycle is under stress.

I hope and I expect that this country is going to recognize that independent central bank is the best way to get under control the thing which we hate the most.

Just on the people hate inflation point um which I think is a very salient idea. You've been very vocal on the idea of like companies having learned the inflation playbook, right? like they tested um price elasticity during the last round of high inflation and you know maybe maybe there's more of an impulse this time around to raise prices to offset either higher input costs or higher tariff costs. Are you still sort of on the inflationary impulse side? Do you think that residual experience still matters?

I definitely think the residual experience matters. When I talk to companies about the tariffs that that hit them, the first thing you hear is I'm going to pass it on to my customers. But I also think this residual experience matters on the customer side.

You know, I guess I just remind everybody that this isn't 2022. In 2022, a bunch of supply costs hit a bunch of companies that passed it on. And the people who received them, you and I, we hadn't spent money for a year and a half uh with COVID. We'd gotten stimulus payments. Our assets were quite frothy and highly valued. We were ready for revenge spending and we spent. And that's 2022. We're not in 2022. when by the way we also had accommodated monetary policy. We're in 2025 where we have restrictive monetary policy and in addition you have consumers who are already trading down and so I've said earlier they've got money but they're not dying to spend it and what you hear is normal price retailer to value retailer beef to chicken um vacation to station that's that's what you're hearing and people and private label is growing and so I think those customers are not going to accept those price increases the same way they have and it's sort of Milton Friedmany a little bit if there's not more money in the system how are you going to get inflation

argue there's some money in the system and you'll get some inflation.

But I don't think you're going to get anywhere near the company that's now learned how to pass on prices is going to meet a consumer who's ready to resist it.

You mentioned restrictiveness just then and this is something that pal also said in the speech today. He said, you know, rates are still restrictive. I think he said albeit modestly so. But when I look at stocks at all-time highs and credit spreads at, you know, basically 30-year lows, financial conditions, things don't seem all that restrictive if you look specifically at the market. H how is the Fed sort of coming to the conclusion about the relation of benchmark rates here or the character of

As you can tell from the SCP, different people have different models. Um the model that we use in Richmond, you know, has a lot to do with the impact of rates on the economy. And so, you know, you can see what rates are and you can lag it and look a year later and see what the impact is. One thing I like to look at is nominal consumption.

Um, nominal consumption was quite elevated during the pandemic. We raised rates and it came down still at a decent level. It's been it's been sort of 5 a half% until the last couple months, but it sort of seems to have come off that um in the last month or two. We'll see what the more recent data is, but that nominal consumption is a great way to look at it because it just says what's happening in rates to what people are doing in the economy. I do agree there are lots of other factors that affect dynamism in the economy. And if the market's frothy, a thing we don't control, that's also part of it. But in the part we control, I think you can see it by its works. I think I just have uh one more question for you. And I just feel like maybe because you talk to businesses so much, maybe you're have some fresh insight on this. Do you hear much about electricity prices in your conversations these days? Because I feel like they're starting to be in the news and the strain on the grid and what for whatever reason. How's that that you hearing much about that?

A lot of concern about electricity availability.

Okay.

You know, are we going to have enough electricity to power all the AI and all the data centers are going up.

You know, there are there are states, you know, Virginia is one where data centers are quite right. And so, you do hear a little bit of public concern about what's this all going to mean? Yeah.

But just a reminder that electricity prices tend to lag significantly. They got to go through rate processes. Every state is different.

And so, you know, I'm not sure that's hitting the consumer public. I I do hear lots of I'll just call it local infrastructure funding costs being passed on to consumers and consumers making trade-offs in that context. So, you know, there was a big water increase in a town I was in in Maryland a month ago and a lot of conversations about people not paying their water bill because so you do hear it more broadly, but I wouldn't say that the price has yet hit.

Okay. So, I'm going to ask a sort of on the ground color question, but when you think about this Jackson Hole and you think about maybe last year's Jackson Hole in 2024, can you compare and contrast the vibes? How are they different?

Yeah, this is my eighth one. Two of them were virtual. They're not nearly as good when they're virtual.

I bet no fish.

It's a nice It's a nice picture. Uh I'd say in general the vibe is is uh pretty much the same. um every time I mean uh I really like them because there's a they they turn over the population a little you know and so there are new academics every time new academics I haven't met new leaders I haven't met so that's kind of fun for me and I get that but I I I'm not sure the vibe changes all that much it's a it's a real privilege to be invited to a place like this and I enjoy it and I I don't spend a lot of time thinking about uh the vibes exactly all right Tom Barkin thank you so much for coming back on a thoughts really appreciate it

and always appreciate with you. Thank you.

Thank you so much. That's fantastic.

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Joe, you know, I have some furniture from North Carolina. It's really good quality. Maybe

made in North Carolina, not just imported through the portion or the shows of North Carolina.

No, actually made in North Carolina. And I know that because it's vintage. So it was probably back when Yeah. the furniture industry was a little bit bigger there.

I do think like did North Carolina I mean as a long-standing debate some of the biggest boom cities of the 2000s and 2010s were like you know Durham and all those places etc. You know it's still like going back

a huge boom city. All the banking stuff there like you think about the last 25 years. This is the area that we think is like most quote hollowed out etc. It's also like one of the fastest growing areas of the whole is it complic even even the past is complicated. Hindsight is not 2020.

Yeah. And I think complication is sort of complication and uncertainty are the big buzzwords of this conference. Clearly like we hear it over and over again that there are risks on both the employment side of the mandate and the price side of the mandate and central bankers basically have to make like a tough choice over which one they're going to concentrate on. I did think it was interesting that Tom mentioned that he read Pal's speech as more down the middle than perhaps the market did.

No, I thought that was interesting, too. I like the um the fog analogy that you actually don't want to break too much of the fog fog either because the car behind you might not react to time. Thought that was really good. I also like the part about how threequarters of the time being a central banker is really easy because either you hike or you cut or you go on a hike in Wyoming. But the but the fourth time like the fear is stagflation.

Yeah.

Right. Like that's just that's what that that's what that fourth. So he was like this is that fourth time. Now how persistent whether it be whether but the basic like what we're talking about in all these conversations what we're talking about is this building anxiety about stagflation.

It's stagflation combined with really difficult to predict timelines for exactly when it materializes. Right. Like that also seems to be a complicating factor.

Okay. Well on that note, should we leave it there? Let's leave it there.

This has been another episode of the All Thoughts Podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway.

And I'm Jill Weisenthal. You can follow me at the stalwart. Follow our producers Kerman Rodriguez at Carmen Arman, Dashelob Bennett at Dashbot, and Kale Brooks at Kalebrooks. For more OddLots content, go to bloomberg.com/odlots. We have the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/ods. And if you enjoy all thoughts, if you like it when we catch up with Fed presidents, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely adree. All you need to do is find the Bloomberg channel on Apple Podcast and follow the instructions there. Thanks for listening.

Yeah.

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Yeah.

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