Tom Barkin on Why Central Banking Is on Hard Mode Now

Summary

Odd Lots Summary: Tom Barkin on Why Central Banking Is on Hard Mode Now

Podcast: Odd Lots by Bloomberg
Episode Date: August 25, 2025
Guests: Tom Barkin (Richmond Fed President)
Hosts: Joe Weisenthal, Tracy Alloway

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Episode Overview

This episode, recorded at the Jackson Hole economic symposium, features Richmond Fed President Tom Barkin discussing why central banking is especially challenging (“hard mode”) in the current economic climate. The hosts and Barkin examine the unusually complex tradeoffs and uncertainties that central bankers face regarding inflation, labor markets, and economic growth. They also dig into the impact of tariffs, the durability of inflation, consumer psychology, Fed independence, and regional economic issues, especially those relating to North Carolina and trade policy.

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Key Discussion Points & Insights

1. Interpreting the Economic Data and Labor Market Ambiguity

• Uncertainty in Economic Signals: Barkin emphasizes persistent confusion and lack of clarity in key indicators driving Fed decisions.
  • Quote: “I’ve been saying I’m confused about everything. I'm confused about the labor market and the inflation side.” (02:59, Barkin)
• Labor Market Anomalies:
  • Businesses report little hiring or firing, with job growth numbers now revising sharply down, which seems more realistic given these anecdotes.
  • Concern: If job growth runs near zero, it changes the calculation of economic health despite a still-low unemployment rate (4.2%).
  • Demographics and migration heavily influence labor trends; baby boomers are retiring and immigration has slowed.
• Data Revision and Confidence:
  Barkin expects further downward revisions, amplifying uncertainty: “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 0 job growth market.” (04:33, Barkin)

2. Fed Policy and Chair Powell’s Jackson Hole Speech

• How Dovish Was Powell Really?
  • Markets interpreted Powell’s Jackson Hole speech as dovish; Barkin saw it as "down the middle." (06:45)
    • Quote: “It seemed like a perfectly down the middle speech to me. ... It seemed like they [markets] read it as more dovish than I heard it. But what do I know?” (06:59, Barkin)
  • Powell emphasized the labor market, focusing attention on one part of the Fed's dual mandate.
• The Difficulty of Today’s Monetary Policy:
  Barkin states that policy is only hard “when you have risk on the inflation side and risk on the employment side,” unlike more straightforward times. (05:40)
  • Quote: “Monetary policy is really easy three quarters of the time... but if you’re going to have risk on the inflation side and risk on the employment side, that’s when it gets hard.” (05:19, Barkin)

3. The ‘Fog’ Analogy and the Lifting of Uncertainty

• Transition from Uncertainty Towards Cautious Optimism:
  Barkin likens recent economic decision-making to “driving in the fog,” but says the “fog is lifting” as tariff, tax, immigration and deregulation boundaries become clearer.
  • Quote: "When you’re driving in the fog, it’s hard to put your foot on the gas… But what I’ve been saying the last month is I think the fog is lifting.” (08:51, Barkin)
• Consumers Are Driving Momentum:
  • Significant uptick in consumer spending starting late June and into July, per credit card data and business anecdotes.
  • Businesses remain cautious, relying on attrition rather than layoffs; few are aggressively expanding.

4. Inflation: Persistence and Drivers

• Sticky Inflation:
  • Barkin cautions that bringing inflation down to 2% takes time, recalling that after the Volcker shock, inflation drifted lower over many years, not months.
    • Quote: “People don’t just immediately go back to the old number. …There’s some stickiness to it.” (12:45, Barkin)
• Tariffs and Pricing Behavior:
  • Tariff effects trickle into prices slowly. Not all companies are directly impacted, but many still use the narrative as cover to raise prices.
  • Companies and consumers both "learned" from high inflation, potentially affecting price and wage behaviors going forward.
    • Quote: “This company that's learned how to pass on prices is going to meet a consumer who's ready to resist it.” (24:32, Barkin)
• Why Rate Cut Conversations Persist:
  • With unemployment low but possibly creeping up, and inflation above target but not surging, the Fed’s calibration is difficult. The “neutral” rate is ambiguous.

5. The North Carolina Example: Regional Dynamics and Tariffs

• Tariff Headlines and Real Impact:
  • The Carolinas have seen both heavy job losses (e.g., in textiles, furniture) and robust growth thanks to international and high-value manufacturing.
  • Effect of tariffs varies widely by sector and supply chain exposure.
    • Quote: “It’s very, very dependent on where you sit.” (19:10, Barkin)
• Tariffs and Job Return Skepticism:
  • Barkin doubts that even high tariffs will reverse outsourcing trends due to workforce supply and economic realities.
    • Quote: “I don't know the level of tariff that one would need to get to to bring those jobs back, but it's a pretty significant number.” (20:13, Barkin)
  • Generational skepticism: younger workers hesitate to go into fields their parents lost jobs in, highlighting the need for job stability alongside job creation.

6. Fed Independence in an Increased Political Climate

• The Value of an Independent Central Bank:
  • Barkin strongly defends Fed independence as essential to fighting inflation.
    • Quote: "An independent central bank is the answer to that question. The research is very powerful.” (22:15, Barkin)
  • He hopes the U.S. will recognize the need for an apolitical Fed: “I hope, and I expect that this country is going to recognize [that]…” (22:45, Barkin)

7. Evaluating Policy Restrictiveness and Transmission

• Are Rates Still Restrictive?
  • Despite “restrictive” rates, asset prices (stocks, credit spreads) remain elevated, complicating the policy transmission narrative.
  • Barkin suggests using “nominal consumption” as a practical, observable metric.
    • Quote: “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.” (25:19, Barkin)

8. Electricity Prices, Infrastructure, and Local Concerns

• Emerging Corporate Concerns:
  • Barkin notes growing business anxiety over electricity supply, particularly with AI and data center growth, although consumer price impacts haven’t surfaced significantly yet.

9. Atmosphere at Jackson Hole

• Stable But Valuable Gatherings:
  • Barkin’s eighth Jackson Hole symposium; he notes that the vibe is similar each year, but values the turnover in attendees for new ideas and perspectives. (27:27+)

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Notable Quotes & Moments (with Timestamps)

• On the Difficulty of Current Central Banking:
  “Monetary policy is really easy three quarters of the time… but if you’re going to have risk on the inflation side and risk on the employment side, that’s when it gets hard.” (05:19, Barkin)

• On Interpreting Powell’s Speech:
  "It seemed like a perfectly down the middle speech to me. ... It seemed like they read it as more dovish than I heard it. But what do I know?" (06:59, Barkin)

• On the Lifting ‘Fog’:
  "But what I've been saying the last month is I think the fog is lifting." (08:57, Barkin)

• On Tariffs’ Impact Varying Locally:
  “It’s very, very dependent on where you sit.” (19:10, Barkin)

• On Why Inflation Is Slow to Fall:
  “There’s some stickiness to it. … inflation numbers… have gone from seven at their peak down to somewhere in the high twos… I think that’s one piece of it actual just, it’s sticky, it takes a while.” (12:45-13:19, Barkin)

• On Learned Inflation Behaviors:
  “This company that's now learned how to pass on prices is going to meet a consumer who's ready to resist it.” (24:32, Barkin)

• Defending Fed Independence:
  "An independent central bank is the answer to that question. The research is very powerful." (22:15, Barkin)

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Timestamps for Key Segments

| Time | Segment/Topic | |-----------|-------------------------------------------------------------------| | 02:29 | Introduction of Tom Barkin & setup for Fed/labor/inflation debate | | 04:33 | Labor market revisions, demographic changes influencing jobs | | 05:19 | Policy is "hard mode" when both mandates (jobs/inflation) are at risk | | 06:45 | Barkin's take on Powell’s Jackson Hole speech | | 08:51 | "Driving in the fog" analogy and signs of fog lifting | | 11:13 | Consumer spending resurgence, possible economic reacceleration | | 12:18 | The stickiness of inflation and role of tariffs | | 14:41 | What caused post-pandemic disinflation: Fed or supply chains? | | 17:54 | North Carolina manufacturing, tariffs, and economic complexity | | 19:34 | Trump’s proposed furniture tariffs, structural issues in workforce| | 21:10 | Discussion of Fed independence and political pressures | | 23:26 | Companies/consumers “learning” inflation & price-setting dynamics | | 24:49 | Are financial conditions still restrictive? Benchmark rate debate | | 26:25 | Electricity prices and infrastructure strain concerns | | 27:27 | Jackson Hole 'vibes' and value of the symposium |

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Final Reflection from Hosts

At the end, Tracy Alloway and Joe Weisenthal reflect on:

• The recurring themes of uncertainty and complication at Jackson Hole (“complication and uncertainty are the big buzzwords” 29:11, Alloway).
• Barkin’s “driving in the fog” analogy and central banking being easy “three-quarters of the time” – except now, during stagflation-like ambiguity.
• Difference between market perceptions and Fed officials’ views, especially regarding Powell’s speech.

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Tone & Language

• The episode maintains the accessible but knowledgeable style of Odd Lots: conversational, analytical, and laced with metaphor (“driving in the fog,” “hard mode”).
• Barkin is frank, practical, and refrains from oversimplifying, repeatedly returning to anecdotes from his regional tours.

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For Listeners Who Haven’t Tuned In

This episode is essential for understanding current central banking dilemmas: the difficulty of balancing jobs and inflation in a changing, uncertain world; the slow fade of inflation; the uneven realities of trade policy; and the subtle shifts in consumer, business, and policymaker psychology driving monetary decisions in 2025. Barkin’s regional perspective and real-world anecdotes highlight complexities often missing from high-level commentary.

Skip advertisements; key content is between [02:29] and [28:10], with introductory and reflective commentary bracketing the substantive discussion.

Transcript

[Lisa Mateo]

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[Joe Weisenthal]

Bloomberg Audio Studios Podcasts Radio News.

[Tracy Alloway]

Hello, and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal.

[Tracy Alloway]

Joe, we are still at Jackson Hole.

[Joe Weisenthal]

Yes.

[Tracy Alloway]

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

[Joe Weisenthal]

That's correct.

[Tracy Alloway]

For the entire event. And we will have gotten. Well, we already had the speech from Fed Chair Jerome Powell, right? That's right. And this afternoon as we're recording, we're seeing markets surging. Everyone, it seems, has interpreted this as pretty dovish.

[Joe Weisenthal]

Yeah, that's right. Ann Wong at Bloomberg had an interesting piece. Maybe it wasn't as dovish as people think, but. But it felt dovish in the context of a recent chat with Austan Goolsbee recently. 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 things are maybe still looking a little warm on some.

[Tracy Alloway]

You could be talking about hikes. If you look at the Taylor rule, you could argue maybe rates should be a little higher.

[Joe Weisenthal]

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

[Tracy Alloway]

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

[Tom Barkin]

Yeah, good to see you guys, too.

[Tracy 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. But 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?

[Tom Barkin]

Well, as you said, I've been saying I'm confused about everything. I'm confused about the labor market and the, in 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 that kept coming in at 130,000amonth or 120,000amonth, 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. If you're not hiring, then where the new hire is 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 0 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 at any time in any cycle. And so how lucky do you feel, Delphil, 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 into the country the way that we used to. You could call that 2 million a year. My generation, the 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 3 people 65 and older increase out of the workforce over the last three years per year. And then this temporary protected status thing takes some more people out of the workforce. And so it's possible that we're seeing zero job growth and that's going to keep the unemployment rate steady. But 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.

[Tracy Alloway]

Talking about Walmart, basically said, it's coming, it's coming now.

[Tom Barkin]

It doesn't have to be as severe as 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. 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 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.

[Joe 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 maybe. Do you get it in advance? I'm just curious. So you read it at the same time as we did, like, what was your read on it?

[Tom Barkin]

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

[Joe Weisenthal]

So come on, he's being very diplomatic.

[Tom Barkin]

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. You know, I was even sophisticated.

[Joe Weisenthal]

The commentator was correct in a way.

[Tom Barkin]

That you actually yourself had thought about.

[Joe Weisenthal]

Respect.

[Tom Barkin]

So, so when you guys read these speeches, I mean, the commas matter, the sentences matter, that's really our call.

[Joe Weisenthal]

For what it's worth, that's our colleagues who are commas. But let's give us, let's hear your take.

[Tom Barkin]

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

[Tracy Alloway]

Well, I mean, this kind of begs the question, but Powell could easily have just said 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?

[Tom Barkin]

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

[Tracy Alloway]

Tell him he should come on the show.

[Tom Barkin]

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.

[Tracy Alloway]

Right? Right.

[Tom Barkin]

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 prep from the press conference to hear. I don't know. I mean, he knows what he does.

[Joe Weisenthal]

Something that came up in our conversation with Jeff Schmid 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 KC 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 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?

[Tom Barkin]

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 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 money analogy I've been using for a few months. But what I've been saying 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 know, 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. 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 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. I've been waiting for this tax thing to pass, have certainty, 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. 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 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 we'll get the PCE next week. Very attentive to what we're seeing. But you could imagine a temporary air pocket as consumers 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 people were going to be unemployed and they were going to have issues and now they're not seeing it. It's possible.

[Tracy 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?

[Tom Barkin]

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 acceleration, 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.

[Joe 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. All right, maybe. But 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?

[Tom Barkin]

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 4.

[Joe Weisenthal]

Oh, yeah.

[Tom Barkin]

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

[Joe Weisenthal]

Half throughout the 80s and 90s.

[Tom Barkin]

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 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 seven at their peak down to 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, 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.

[Joe 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 to take this 2% commitment?

[Tom Barkin]

Well, so there's calibration going on. So you've got unemployment that's low but maybe turning 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 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?

[Tracy 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?

[Tom Barkin]

I think it's in 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 number for about two years that 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 helped. Hopefully the Fed did its part and the combination of those things brought it down.

[Tracy Alloway]

This Labor Day.

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[Joe Weisenthal]

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

[Tracy 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 there.

[Joe Weisenthal]

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

[Tom Barkin]

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 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 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 costs, they're going to get. So it's very, very dependent on where you sit.

[Tracy 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?

[Tom Barkin]

Well, we've been seeing a lot of headlines on the tariffs thing. So 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 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 low cost workforces. And I don't know the level of tariff that one would need to get to to 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. But 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.

[Joe 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, or the political pressure that the Fed has been coming under. When you think about inflation, maybe not in the short term, maybe not the latest PPI reading or whatever, but when you think about the long term, the ability of the Fed to maintain that 2% inflation. Do you think about, well, will the US political system have the sort of stomach to preserve a Fed as an independent agentic force in the economy?

[Tom Barkin]

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. Yeah, 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 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 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. And an independent central bank is the answer to that question. The research is very powerful.

[Joe Weisenthal]

But do you worry 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?

[Tom Barkin]

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.

[Tracy Alloway]

Just on the people hate inflation point, which I think is a very salient idea. You've been very vocal on the idea of companies having learned the inflation playbook. Right. They tested price elasticity during the last round of high inflation, and 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?

[Tom Barkin]

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. 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 accommodative 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, vacation to staycation. That's what you're hearing. 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 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 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 company that's now learned how to pass on prices is going to meet a consumer who's ready to resist it.

[Tracy 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, 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 rate?

[Tom Barkin]

As you can tell from the sep, different people have different models. 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 at your 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 sort of five and a half percent until the last couple 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.

[Joe 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 hearing 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 hearing much about that?

[Tom Barkin]

A lot of concern about electricity availability.

[Joe Weisenthal]

Okay.

[Tom Barkin]

You know, are we going to have enough electricity to power all the AI and all the data's just 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.

[Joe Weisenthal]

Yeah.

[Tom Barkin]

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 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 prices yet hit.

[Tracy Alloway]

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 and how are they different?

[Tom Barkin]

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

[Tracy Alloway]

I bet.

[Joe Weisenthal]

No fish at all.

[Tom Barkin]

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

[Tracy Alloway]

Yeah, there's new guests every time.

[Tom Barkin]

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'm not sure the vibe changes all that much. 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 the vibes. The vibes, exactly.

[Tracy Alloway]

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

[Tom Barkin]

And I always appreciate being with you. Thanks.

[Joe Weisenthal]

Thank you so much. That was fantastic.

[Tracy Alloway]

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

[Joe Weisenthal]

Maybe made in North Carolina, not just imported through the ports or the shows in North Carolina.

[Tracy Alloway]

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

[Joe Weisenthal]

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, et cetera. You know, it's still like going back Charlotte.

[Tracy Alloway]

Charlotte was a big one.

[Joe Weisenthal]

Huge boom. 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 of the whole country. Even the past is complicated. Hindsight is not 2020.

[Tracy 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 mand. 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.

[Joe Weisenthal]

No, I thought that was interesting too. I like the 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. Thought that was really good. I also like 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 the fear is stagflation. Right? That's what that fourth. So he was like, this is that fourth time. Now, how persistent will 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.

[Tracy 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, should we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me, Tracy Alloway.

[Joe Weisenthal]

And I'm Jill Wiesenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez Ermenarman, Dash o' Bennett at dashbot and Cale Brooks. And Cale Brooks. 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 Oddlauts.

[Tracy Alloway]

And if you enjoy Oddlauts, 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 Listen SA.

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