Tom Barkin on Why Central Banking Is on Hard Mode Now

According to Richmond Federal Reserve Bank President Tom Barkin, much of the time central banking is straightforward. Sometimes it's clear that rate cuts are needed. Sometimes it's clear that rate hikes are needed. Other times everything is going great, and central bankers don't have much to worry about. Right now though, things are not straightforward. There are signs of labor market softening. But also there are reasons to be concerned that inflation pressure is building yet again. In times like this, the playbook is less obvious. On this episode, recorded at the Jackson Hole Economic Symposium, Barkin walks us through how he's thinking about the economy right now. More: Fed’s Jackson Hole Points to a Hard Road Ahead for Powell Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

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  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

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  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

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• 2:29Tracy Alloway?

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

• 2:33Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:35Tracy Alloway?

  Joe, we are still at Jackson Hole.

• 2:36Joe Weisenthal?

  Yes.

• 2:37Tracy Alloway?

  By the time this episode comes out, the dust will have settled.

• 2:41Joe Weisenthal?

  That's correct.

• 2:41Tracy Alloway?

  The entire event and we will have gotten, well, we already had the speech from Fed Chair Jerome Powell.

• 2:48Joe Weisenthal?

  That's right.

• 2:49Tracy Alloway?

  And this afternoon, as we're recording, we're seeing markets surging.

• 2:53Joe Weisenthal?

  That's right.

• 2:54Tracy Alloway?

  Everyone, it seems, has interpreted this as pretty dovish.

• 2:57Joe Weisenthal?

  Yeah, that's right. Anna Wong at Bloomberg had an interesting piece. Maybe it wasn't as dovish as people think, but it felt dovish in the context of, you know, a recent chat with Austin Goolsbee.

• 3:09Tracy Alloway?

  Exactly.

• 3:10Joe Weisenthal?

  He was concerned about, he's starting to look at that inflation data a little bit more. Felt dovish 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 some friends.

• 3:24Tracy Alloway?

  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.

• 3:28Joe Weisenthal?

  Anyway, I think we should continue on our, our survey of as many Fed Presidents as we can.

• 3:33Tracy Alloway?

  All right. 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.

• 3:41Speaker 05

  Yeah, good to see you guys too.

• 3:42Tracy Alloway?

  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 guess you talked earlier this week that the balance between employment risks and inflation risks is really unclear at the moment. Powell seemed to err on the side of the labor market, right? He kind of chose to prioritize that. Do you think that's the right move?

• 4:10Speaker 05

  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 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, they 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, given what I'm hearing in the marketplace.

• 4:55Speaker 05

  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 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 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? Did you feel on the jobs growth? How much do you feel on 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.

• 5:39Speaker 05

  You could call that 2 million a year. My generation, the baby boomer, 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 million, three people 65 and older increase out of the workforce over the last three 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.

• 6:22Speaker 05

  You would have seen Walmart's earnings report yesterday where they talked about it or Home Depot or, you know, people are talking about.

• 6:27Tracy Alloway?

  No, Walmart basically said it's coming.

• 6:29Speaker 05

  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 my tariff policy is really easy three quarters of the time. You know, when 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.

• 6:57Joe Weisenthal?

  Talk to us about your interpretation of Powell's speech, because it does seem like actually there is not consensus on 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, do you get it in advance? I'm just curious.

• 7:11Speaker 05

  No, we don't.

• 7:12Joe Weisenthal?

  Okay, so you read it at the same time as we did. Like, what was your read on it?

• 7:16Speaker 05

  So I think you guys are all incredibly talented and much more talented than I am.

• 7:20Joe Weisenthal?

  But.

• 7:20Speaker 05

  At interpreting speeches. So.

• 7:23Joe Weisenthal?

  I don't come on.

• 7:24Tracy Alloway?

  He's being very diplomatic.

• 7:26Speaker 05

  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 years. And I'm like, huh, that was really well done. I, you know, I was even sophisticated.

• 7:40Joe Weisenthal?

  The commentator was correct in a way that you actually yourself had.

• 7:42Speaker 05

  I had thought about.

• 7:43Joe Weisenthal?

  Okay, respect.

• 7:44Speaker 05

  So, so when you guys read these speeches, I mean, the commas matter, the sentences matter.

• 7:52Joe Weisenthal?

  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 take.

• 7:56Speaker 05

  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 it wrong.

• 8:02Joe Weisenthal?

  No accidents.

• 8:02Speaker 05

  But when I read it and when I heard it, I actually heard it live for the first time. So I didn't read it before it came out. It seemed like a perfectly down the middle speech to me. If you'd 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 it read it as more dovish than I heard it. But what do I know? I mean, I've just listened to the speech like everybody else.

• 8:21Tracy Alloway?

  Well, I mean, this kind of begs the question, but Powell 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?

• 8:39Speaker 05

  I mean, you'd have to ask, you know, when he comes on the show.

• 8:41Tracy Alloway?

  Yeah.

• 8:42Speaker 05

  I know you'll have a lot of questions for him on that.

• 8:43Tracy Alloway?

  Tell him he should come on the show.

• 8:45Speaker 05

  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 meetings.

• 8:50Tracy Alloway?

  Right, right.

• 8:51Speaker 05

  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 of 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 here. I don't know. I mean, it's a, he knows what he does.

• 9:08Joe Weisenthal?

  Something that came up in our conversation with Jeff Schmidt was this idea that, and I'm curious how this sort of jibes with 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. And intuitively, right? Post liberation day. Lots of anxiety, uncertainty. Yeah, it makes sense. There'd be a hiring slowdown. However, something that Casey Fed President Schmidt 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

• 9:51Joe Weisenthal?

  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?

• 10:02Speaker 05

  Yeah, so I've been describing that as driving in the fog. And, you know, I've been saying that when you're driving in the fog, it's hard to put your foot on the brake, 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 money analogy I've been using for a few months. But what I've been saying, you know, the last 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

• 10:45Speaker 05

  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 going to, you know, be a little cautious with my costs. 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 that have certainly, but I wouldn't say not at scale, you know, modest amounts of it. The one place where you might be seeing this sentiment change is on the consumer side.

• 11:27Speaker 05

  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, end of 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 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's the one place I'm starting to see movement. I'm very attentive, you know, we'll get the PCE next week, very attentive

• 12:09Speaker 05

  to what we're seeing. But 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.

• 12:25Tracy Alloway?

  Do you think that we're maybe getting a bit of a re-acceleration 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 re-acceleration impetus?

• 12:42Speaker 05

  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 re-acceleration when you get there. I definitely am not talking to businesses who are talking about blowing out earnings. I don't hear one of those kind of accelerations. So I don't hear frothiness yet. But I am hearing some very positive vibes on the consumer spending side, which I'm pleased to hear.

• 13:04Joe Weisenthal?

  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, sorry, 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?

• 13:29Speaker 05

  Well, so I just think it takes a long time to get inflation back to 2%. If you go back and look at the Volcker 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.

• 13:49Joe Weisenthal?

  Oh, yeah.

• 13:50Speaker 05

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

• 13:55Joe Weisenthal?

  But throughout the eighties and nineties.

• 13:56Speaker 05

  Exactly, for twenty 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 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.

• 14:41Speaker 05

  Actual just 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 cover to pass on costs.

• 14:52Joe Weisenthal?

  So just real quickly then, if there's all these factors, et cetera, why is there conversation about cutting rates? Or if there is conversation about cutting rates, how seriously should the, should people be, take this two percent commitment?

• 15:06Speaker 05

  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 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, do you recalibrate to a different number in the context of this? Or, you know, are we, are we well positioned where we are?

• 15:33Tracy Alloway?

  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?

• 15:52Speaker 05

  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 at harbors, chips not in cars, people not at work, those things also ameliorated. We also had a really big immigration number for about two years that meant, you know, the supply side, jobs got filled a lot faster. It, you know, definitely released the pressure and a lot of things. So, supply help, hopefully the Fed did its part and the combination of those things brought it down.

• 16:45Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 17:01Speaker 06

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service insocial clients.

• 17:10Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reece Merrick of Ripple says.

• 17:18Speaker 07

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 17:37Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 17:47Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 18:29Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 19:10Joe Weisenthal?

  When we were in Alaska, we learned that there is a major furniture expo every year in your district. And 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.

• 19:31Tracy Alloway?

  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.

• 19:40Joe Weisenthal?

  There absolutely is a very short 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 do you see?

• 19:53Speaker 05

  So, no question, historically, the textile industries, the furniture industries got hit very hard. If you look at the Carolinas, though, and you took it the last 25 years, you'd say there's also been a lot of Foreign-based manufacturers that have put manufacturing sites, I'm thinking of Greenville, South Carolina, Spartanburg, where I was 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, and it's very different by your position in that sector. So there are a lot of people who manufacture in South and North Carolina, but they source abroad and they're very worried about their costs. Think of the big auto manufacturers. There's a lot of people who manufacture in North Carolina and they're 100% American-made,

• 20:37Speaker 05

  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 gonna get. So it's very, very dependent on where you sit.

• 20:47Tracy Alloway?

  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?

• 21:11Speaker 05

  Well, we've been seeing a lot of headlines, you know, on the tariffs thing. So 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've talked to also do. I'm sure the people who manufacture furniture in North Carolina would be 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,

• 21:53Speaker 05

  or have high-paid, you know, workforce. And a lot of these jobs have gone to places with very low-cost 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 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 COVID, and they were, you know, having a very strong demand cycle.

• 22:21Speaker 05

  But I went to a community college, I talked to a bunch of workers there. And I said, well, you guys train 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 there's stable jobs and there are jobs that are going to be around for a generation is very important, I think, in terms of getting workers into the jobs.

• 22:47Joe Weisenthal?

  We are recording this the day that Chairman Powell gave his final speech as Fed Chair at Jackson Hole. 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. 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 an independent agentic force in the economy?

• 23:31Speaker 05

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

• 23:37Joe Weisenthal?

  Yeah.

• 23:37Speaker 05

  And inflation, you know, it feels unfair. You get a raise and then, you know, the money gets spent somewhere else. It 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, vendors. And so if there's one thing I think the American people have aligned on over the last five years is just how much we hate inflation. And, you know, there's been a lot of work done in a lot of countries in terms of what's the best way to get inflation under control on an independent central bank is the answer to that question. The research is very powerful.

• 24:09Joe Weisenthal?

  But do you worry that like the, that the, that over the medium term, that this 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?

• 24:22Speaker 05

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

• 24:29Tracy Alloway?

  Just on the people hate inflation point, which I think is a very salient idea.

• 24:36Tracy Alloway?

  You've been very vocal on the idea of like companies having learned the inflation playbook, right? Like they tested 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?

• 25:04Speaker 05

  I definitely think the residual experience matters. When I talk to companies about the tariffs 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 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.

• 25:48Speaker 05

  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, vacation to staycation. That's, that's what you're hearing and people and private labels 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 Friedman-y a little bit. If there's not more money in the system, how are you going to get inflation? And you could argue there's some money in the system, but, and you'll get some inflation. I believe that. But I don't think you're going to get anywhere near the kind of stuff that people imagine because this, you know, company that's now learned how to pass on prices is going to meet a consumer who's ready to resist it.

• 26:26Tracy Alloway?

  You mentioned restrictiveness just then, and this is something that Powell 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. How is the Fed sort of coming to the conclusion about the relation of benchmark rates here or the character of benchmark rates?

• 26:56Speaker 05

  As you can tell from the SCP, different people have different models.

• 26:59Tracy Alloway?

  Of course.

• 27:00Speaker 05

  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. 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 five and a half percent until the last couple of months, but it sort of seems to have come off that 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.

• 27:43Joe Weisenthal?

  I think I just have one more question for you. And I just feel like maybe because you talk to businesses so much, maybe you 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 for whatever reason, how's that, you're hearing much about that?

• 28:02Speaker 05

  A lot of concern about electricity availability.

• 28:05Joe Weisenthal?

  Okay.

• 28:05Speaker 05

  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's one where data centers are quite, and so you do hear a little bit of public concern about what's this all going to mean?

• 28:18Joe Weisenthal?

  Yeah.

• 28:19Speaker 05

  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 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 the 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 prices yet hit.

• 28:51Tracy Alloway?

  Okay, so I'm going to ask a sort of on the ground color question.

• 28:54Speaker 05

  Okay.

• 28:55Tracy Alloway?

  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?

• 29:04Speaker 05

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

• 29:10Joe Weisenthal?

  No fish.

• 29:10Speaker 05

  It's a nice, it's a nice picture. I'd say in general, the vibe is, is pretty much the same every time. I mean, I really like them because there's a, they, they turn over the population a little, you know, and so there are new academics.

• 29:24Tracy Alloway?

  Oh, yeah, there's new guests every time.

• 29:25Speaker 05

  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'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 don't spend a lot of time thinking about.

• 29:40Tracy Alloway?

  The vibes?

• 29:41Speaker 05

  The vibes, exactly.

• 29:42Tracy Alloway?

  All right, Tom Barkin, thank you so much for coming back on All Thoughts. Really appreciate it.

• 29:45Speaker 05

  And I always appreciate being with you. Thanks.

• 29:47Joe Weisenthal?

  Thank you so much, Tom. That's fantastic.

• 30:01Tracy Alloway?

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

• 30:06Joe Weisenthal?

  Made in North Carolina, not just imported through the port or the shows in North Carolina.

• 30:11Tracy Alloway?

  No, actually made in North Carolina. And I know that because it's vintage. So it was probably back when

• 30:16Joe Weisenthal?

  Yeah.

• 30:16Tracy Alloway?

  the furniture industry was a little bit bigger there.

• 30:18Joe Weisenthal?

  I do think like, did North Carolina, I mean, it's a longstanding debate. Some of the biggest boom cities of the 2000s and 2010s were like, you know, Durham and all those places, et cetera. You know, it's still like going back.

• 30:32Tracy Alloway?

  Charlotte, I think Charlotte was a big one.

• 30:34Joe Weisenthal?

  Charlotte is 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, et cetera. It's also like one of the fastest growing areas in the whole country. It's a complicated, even, even the past is complicated. Hindsight is not 2020.

• 30:48Tracy Alloway?

  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 Powell's speech as more down the middle than perhaps the market did.

• 31:15Joe Weisenthal?

  No, I thought that was interesting, too. I like the fog analogy that you actually don't want to break too much of the fog either because the car behind you might not react in time. That was really good. I also liked the part about how three quarters 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 fourth time, like, the fear is stagflation.

• 31:38Tracy Alloway?

  Yeah.

• 31:39Joe Weisenthal?

  Right? Like, that's what that, that's what that fourth, so he was saying, this is that fourth time. Now, how persistent will it be? But the basic, like, what we're talking about in all these conversations, what we're talking about is this building anxiety about stagflation.

• 31:52Tracy Alloway?

  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, shall we leave it there?

• 32:04Joe Weisenthal?

  Let's leave it there.

• 32:05Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alocke. You can follow me at Tracy Alocke.

• 32:11Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at TheStalwart. Follow our producers, Carmen Rodriguez at Carmen, Dashell Bennett at Dashbot, and Cale Brooks at CaleBrooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 32:31Tracy Alloway?

  And if you enjoy Odd Lots, 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 ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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