Episode Summary: Richmond Federal Reserve President Tom Barkin on "Masters in Business"

Podcast Information:

• Title: Masters in Business
• Host: Barry Ritholtz, Bloomberg Radio
• Description: In-depth discussions with influential figures shaping markets, investing, and business.
• Episode: Richmond Federal Reserve President and CEO Tom Barkin
• Release Date: May 30, 2025

1. Introduction and Background

The episode features a comprehensive conversation between Barry Ritholtz, host of "Masters in Business," and Tom Barkin, President and CEO of the Richmond Federal Reserve Bank. Barkin brings a wealth of experience from his 30-year tenure at McKinsey, where he advanced to roles such as Chief Risk Officer and Chief Financial Officer before transitioning to the Federal Reserve in 2018.

2. Tom Barkin’s Career Path

Barkin traces his career journey beginning with his academic pursuits at Harvard, where he initially intended to become a lawyer but shifted to economics after discovering his passion during his sophomore year. He pursued a combined JD/MBA program, which ultimately led him to McKinsey in 1987. At McKinsey, Barkin thrived in various leadership roles, overseeing the Atlanta office and later becoming CFO during the financial crisis, showcasing his adeptness in managing organizational challenges.

Tom Barkin (04:43): "I fell in love with McKinsey people—smart, talented, idealistic. The combination just worked great for me."

3. Transition to the Federal Reserve

Barkin’s move to the Federal Reserve was influenced by his civic engagement in Atlanta and his tenure on the board of the Atlanta Fed from 2009 to 2014. Upon nearing retirement from McKinsey, a headhunter presented the opportunity to join the Richmond Fed. Encouraged by peers, Barkin embraced the role, aiming to leverage his private sector expertise within a mission-driven institution.

Tom Barkin (07:07): "I never thought that’s a job I would do. It just didn't occur to me until the combination of the headhunter and Dennis encouraged me to do it."

4. Federal Reserve’s Dual Nature and Private Sector Influence

Barkin elaborates on the unique position of the Federal Reserve as an entity that blends private sector dynamism with public mission-oriented objectives. His private sector background aids in enhancing operational efficiencies, particularly in technology and payments, within the Richmond Fed.

Tom Barkin (11:20): "Making sure we're better and working better and delivering better. I think we've done a great job in that."

5. Navigating Economic Volatility and Policy Challenges

Joining the Fed in 2018, Barkin has witnessed significant economic turbulence, including the COVID-19 pandemic, fluctuating interest rates, and ongoing trade tensions. He reflects on the relatively low volatility period during his early career versus the recent instability, emphasizing the lessons learned in managing unexpected economic shifts.

Barry Ritholtz (14:19): "In the 2010s, inflation was between 1 and 2% every single cycle. We added jobs every month."

6. Inflation Expectations and Monetary Policy

A substantial portion of the discussion centers on inflation expectations and their role in shaping Federal Open Market Committee (FOMC) policies. Barkin underscores the importance of anchored long-term inflation expectations, though he acknowledges the challenges in accurately measuring them.

Tom Barkin (20:12): "How much, how significant, how important are inflation expectations to FOMC policy?"

Tom Barkin’s Response (22:29): "If the Fed doesn't fulfill its commitment, expectations can become unanchored, leading to persistent inflation."

7. Regional Economic Insights: The Richmond Fed District

Barkin provides an overview of the Richmond Fed District, highlighting its diverse economic landscape encompassing dynamic growth areas like Charlotte and Raleigh, alongside more rural regions. This diversity requires nuanced economic analysis and tailored policy considerations.

Tom Barkin (26:30): "Labor markets in small towns are unbelievably stressed still."

8. Real Estate and Housing Market Dynamics

The conversation delves into the persistent housing shortages exacerbated by "golden mortgage handcuffs," where existing low mortgage rates discourage homeowners from selling. Barkin discusses the interplay between supply constraints, construction regulations, and persistent demand, advocating for increased housing development as a remedy.

Tom Barkin (38:39): "You have to build more supply. If you drive down 95 and look at exurban areas, you see development of 275 to $325,000 houses moving into what used to be farmland."

9. Remote Work and Its Economic Implications

Barkin explores the lasting impact of the pandemic on remote work trends. He notes the shift towards flexible work arrangements and their repercussions on both residential and commercial real estate markets. The adaptability of businesses to this new work paradigm remains a critical factor in economic planning.

Tom Barkin (36:00): "We're in a marketplace. People will compete it out."

10. Comparison to the 1970s Inflation Era

Drawing parallels between the 1970s and the present, Barkin highlights differences in inflation expectations and policy responses. He emphasizes that, unlike in the 1970s, current long-term inflation expectations remain more anchored due to the Federal Reserve’s proactive policy measures.

Tom Barkin (56:30): "We're in a competition for developers. There are only so many construction people, and you want them to come to your neighborhood and build houses."

11. Future Monetary Policy Considerations

Discussing future policy directions, Barkin emphasizes the balance between conviction and humility in monetary policy. He advocates for a cautious approach, suggesting that the FOMC may adopt a "wait and see" stance amidst ongoing economic uncertainties.

Tom Barkin (53:33): "Monetary policy needs to balance both conviction and humility."

12. Personal Insights: Golf and Work-Life Balance

Concluding the episode on a personal note, Barkin shares his passion for golf, likening the strategic aspects of the sport to the nuanced decision-making in monetary policy.

Tom Barkin (61:51): "Golf is a lot like monetary policy, and I wish I were better at both of them."

Key Takeaways:

• Leadership and Experience: Tom Barkin’s extensive background in risk management and financial operations at McKinsey equips him with valuable insights for his role at the Richmond Federal Reserve.
• Economic Stability and Uncertainty: While recent decades enjoyed relative economic stability, recent years have introduced significant volatility, necessitating adaptive monetary policies.
• Inflation Management: Anchoring inflation expectations remains pivotal, though measuring them accurately poses challenges.
• Regional Economic Diversity: The Richmond Fed District's varied economic environments require tailored policy approaches.
• Housing and Remote Work: Persistent housing shortages and evolving work patterns underscore the need for flexible economic strategies.
• Policy Formation: Future FOMC policies will likely continue to balance assertive actions with measured responses amid economic uncertainties.

Notable Quotes:

• Tom Barkin (05:38): "I spent three years trying to help institutionalize some risk processes at McKinsey, including a lot of the stuff that has been done to defend against cyber."
• Barry Ritholtz (56:30): "We're in a competition for developers. There are only so many construction people and you want them to come to your neighborhood and build houses."

This episode offers a deep dive into the complexities of modern economic policy, inflation control, and regional economic dynamics, all through the lens of a seasoned Federal Reserve leader. Bartkin's blend of private sector acumen and public sector responsibility provides listeners with a comprehensive understanding of the challenges and strategies shaping today's economic landscape.