The Fed's Tom Barkin On the Impact of Higher Interest Rates

Tracy Alloway (0:09)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe is sick today. And so I am very pleased to say that I have a guest co-host, Matt Bosler. He is an economics editor for Bloomberg.

Matt Bosler (0:24)

Hi, everyone, I'm Matt Bosler. Excited to be here.

Tracy Alloway (0:26)

So Matt, I'm so glad you're doing the show today. It is an interesting time in the US economy, and particularly this week. We're recording on September 28th. We've just seen this massive sell-off in the bond market following the recent FOMC meeting. There's lots of talk about higher rates for longer, lots of concerns over whether or not inflation is maybe picking up again, given the rise that we've had in the oil price recently. But overall, it kind of feels surprising how resilient the US economy has so far proven to higher interest rates.

Matt Bosler (1:02)

Yeah, it's really interesting. The Fed has been raising its benchmark short-term interest rate for 18 months now.

We haven't really seen an aggressive move up in long-term interest rates until just the last several weeks. So it's almost like the tightening cycle, maybe it's just gotten started here.

Tracy Alloway (1:19)

Right, 30-year yield, I think when I last looked at 4.7%, something like that. You also have all these headline risks sort of lurking. There is the looming government shutdown that might actually have started by the time we release this episode.

There's questions over the UAW strike, all these sorts of idiosyncratic risks also starting to come into play. And here on Odd Lots, I think people know that we always like to try to tie the macro economic outlook and monetary policy to the real business stuff that's happening on the ground. So I am very pleased to say that we do in fact have the perfect guest with us today to discuss all that. We're gonna be speaking with Tom Barkin, the president of the Richmond Fed. Tom, thank you so much for joining Odd Lots.

Thomas Barkin (2:03)

I'm looking forward to it, and you certainly laid out a long list of things we need to cover.

Tracy Alloway (2:07)

I know, and we only have about 40 minutes, but we'll try to do our best.

Maybe just to begin with, I know you have taken a kind of, I don't wanna say unusual approach, but maybe a special approach to your job as president of the Richmond Fed. You like to go out and talk to businesses within your region. And I'm curious, I know that you were previously at McKinsey, but how does that kind of feed into your thinking around monetary policy? What do you get out of those discussions?

Thomas Barkin (2:43)

So we have a beautiful 24-story building in Richmond. If you drive down I-95, you'll see it. It's quite literally an ivory tower.

And so one thing I figured out pretty early in my tenure was that the data comes in late, it's then revised three times. And so it's awfully hard to know what's actually going on. And so I just made a personal commitment that with the exception of the two weeks around the FOMC meeting, I'm gonna be out every week.

And in the last month, I've been on the Eastern Shore, I've been in the coal country in South Carolina, I've been in Southern Virginia, I've been in the Northern Virginia suburbs, I've been in Western Virginia. And in every one of those trips, I'm meeting with business people, I'm meeting with nonprofits, I'm trying to understand what's actually happening in the economy. And that's where I get my information to sanity check the data as it's coming in, and try to develop my own unique perspective on what's happening.

Tracy Alloway (3:32)

I think to my knowledge, you're the only Fed president who has actually mentioned the Beyonce and the Taylor Swift concerts in a speech, a formal speech.

Thomas Barkin (3:41)

I don't know if that's true, but my daughter also wanted me to put in a few quotes from the Barbie movie, and I managed to withstand doing that.

Matt Bosler (3:49)

You know, we have so many people here in New York in this building and in the surrounding area, right, just pouring over every monthly economic statistic, whether it's the jobs report, the inflation report. When you're going out to all of these places, are you hearing things from businesses that are not necessarily being reflected in the data right now?

Thomas Barkin (4:09)

Yeah, so a couple of great examples, demand. If you look at the recent data we've gotten on consumer spending, it's been unbelievably resilient, as you said, upfront. When you talk to businesses, you'll hear it's okay, right? That's a pretty big gap. And I was with a big retailer about three weeks ago that started talking about what they perceive to be the different segments of consumer spending, the high-end consumer who's still spending on experiences, like Taylor Swift and Beyonce. There you go, I got it in there again, versus the low-income consumer who we all know's, savings been somewhat depleted.