Tom Barkin on Why Central Banking Is on Hard Mode Now

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

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

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, we are still at Jackson Hole.

Joe Weisenthal (0:25)

Yes.

Tracy Alloway (0:25)

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

Joe Weisenthal (0:29)

That's correct.

Tracy Alloway (0:30)

Over 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. Yeah, that's right.

Joe Weisenthal (0:47)

Anne Wong at Bloomberg had an interesting piece, and maybe it wasn't as dovish as people think, but it felt dovish in the context of, you know, our recent chat with Austin Goolsbee. He said 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 Schmid. He too was talking about how, you know, things are maybe still looking a little warm on some friends.

Tracy Alloway (1:12)

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

Joe Weisenthal (1:17)

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

Tracy Alloway (1:22)

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.

Tom Barkin (1:29)

Yeah, good to see you guys too.

Tracy Alloway (1:31)

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?

Tom Barkin (1:58)

Well, as you said, I've been saying, I'm confused about everything. I'm confused about the labor market 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 that kept coming in at 130,000 a month or 120,000 a month, that seemed strange, but it was good news. I mean, there's nothing wrong with a lot of jobs. And so what we saw last month was a different jobs report with a jobs revision that now sort of says, hey, we're growing at 35,000 jobs a month. That actually makes a little more intuitive sense to me, given what I'm hearing in the marketplace. If you're not hiring, then where are the new hires coming from? And by the way, we'll get a revision 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 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 three 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 gonna 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 talking about...