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The US Federal Reserve, the country's iconic and in some cases, monolithic central bank.

It certainly is in the news on a regular basis, probably more so now, and probably not for all the most favorable reasons.

I'm Chris William, welcome again to the Carolina Business Review and this special executive profile.

This time and again, the Richmond Federal Reserve president, Tom Barkin joins us.

We'll talk about the swirl of monetary policy, interest rates, debt levels, the data, and even the independence of the fed itself.

And we start right now.

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On this edition of Carolina Business Review an executive profile featuring Tom Barkin, President and CEO of the Federal Reserve Bank of Richmond (upbeat rock music) Hello.

Welcome again to our program.

Thank you for supporting it.

President Barkin, welcome back.

Always nice to have you in the Carolinas, sir.

Yeah.

No thanks for this.

Glad to be here.

Thank you.

Let's start with the data.

I mean, what better place to start?

PCG personal consumption expenditures.

That seems to be a fave among, economists and certainly the fed.

So the PC number came out.

Any surprises for you?

So we got it this morning.

First and maybe, most importantly, personal income, wages and salaries.

Strong, healthy.

Personal spending.

Consumer spending.

Very healthy.

And the inflation data came in as expected, but higher than our target.

And so core PCE, we're still looking at 2.9% year over year.

Our targets, 2%.

And so it's come down a lot, from where it was three years ago.

And we're hopeful it'll come down that final, last push.

But but not yet.

So does it does it change does does this raft of economic data as you just talked about, does it change anything about the trajectory of what the chair said last week out in Jackson Hole?

Well, I think the inflation data was pretty much as expected.

Even before all this tariff stuff, we, we're still a little bit over 2%.

We remain over 2%.

There's a little signs that you can see the tariffs moving through in prices.

It's not, you know, so significant that it would cause, significant alarm.

And so that's all very much as expected.

I think the consumer spending, it's a welcome piece of news.

I think, if you looked at the first half of the year, GDP was only about 1.4%.

A big drop in consumer spending year over year.

People were wondering, is that mean consumers are completely pulling back, or was it more an uncertainty thing driven by a lot of the, noise for the first half of the year?

This is reassuring.

On the consumer spending side.

You talk about the way the consumer I want to drill down a little bit in that President Park and the idea that we've had this is, this is my turn, sir.

But the start again, stop again idea that a recession is looming.

And we've been through this now, 4 or 5 different fear cycles, if you will, the last 2 or 3 years.

Is there something to that, or do you see that the consumer spending is as strong as it's been?

Well, I do think if you keep predicting a recession, eventually you're going to have one and the world keeps predicting it, whether that be because of, interest rate hikes or because of, you know, uncertainty about policy changes.

It's just gone on and on.

We haven't had one yet.

And I do think a big reason we haven't had one is consumer spending.

People forget this.

70% of the economy, consumers, if you just take a big step back, they have jobs.

Unemployment's low at 4.2%.

Real wages are up.

I told you about, you know, income going up over the last month and, and the asset values are high.

And so people have money and have money in the stock market have more wealth.

So wealthier people with jobs.

Big picture.

It's hard to imagine them pulling back from spending unless something happens, as happened after 911 and happened after Lehman Brothers.

That causes everybody to pull back, in unison.

But absent that, it's just hard to see the economy going that far.

So does, and I, I don't want to go down the rabbit hole too far, but.

We have so many rabbit holes.

Thank you.

Thank you for saying that.

It gives me a little bit of license here, sir.

Is there a black swan event looming like an 0809?

And do you somehow try to model that in.

In what, what you do?

Well, so the nature of a black swan event, of course, is that you can't predict.

You can't.

So, and so you can you can't you can never take that off the table, whatever that would be.

Cyber geopolitics, the like.

I will say though, if you reflect back on 2001 or you reflect back on 2008, businesses were rocking and rolling into both of those scenarios.

I mean, people were investing, people were spending, people were hiring.

And then all of a sudden, something sudden came and people pulled back.

I keep saying this, and I believe it, people have been scaling back now for the last two and a half years, because of all these recession.

And in what way?

On their debt levels, Lower hiring, lower investment.

And so if you think about it, people have been cautious.

They've seen a recession coming.

And in particular, when the interest rates started going up, everyone was predicting it.

And so businesses have been just a little cautious over the last, you know, six, nine months in the context of a lot of changes in policy.

People have been cautious.

I've been describing it as, it's hard to drive through fog.

Yeah.

And, you know, if it gets really foggy, you're not going to put your foot on the brake or on the gas.

You're just going to pull over and put on the hazards.

That's what businesses have been doing.

They've been pulled over with the hazards on the way that shows up is let's downsize a little bit, but not layoffs.

Use attrition.

And, you know, maybe, let's defer on this investment.

All that means if you do have a black swan, it's always a risk.

I'm just not sure.

Businesses are so forward leaning as they were in oh seven and oh eight as they were in oh and oh one.

And so I think the damage, if you have one, is likely to be less.

You talked about those two different time frames.

0708 around the turn of the century as well, asset levels were high real assets and financial assets.

In fact, asset levels are pretty high now.

So does that does that factor in the conversation that goes on around the table at the fed.

So we don't target equity values, much to the chagrin of people in equity markets.

But that's not that's not our focus.

But I think we're all well aware that if you have, money in the stock market and your valuations are up, you just feel a little wealthier, you feel a little freer to spend.

By the same token, you know, when, asset values go down and they always go up and go down.

When they go down, people feel a little less wealthy and a little less willing to spend.

And so there is a risk there.

But it's not the case.

Even a big correction, 87 early in my career, we had a very big correction.

It didn't bring the economy down.

Right.

So, I just I'm not sure that that's the driver.

It's certainly in the background, a driver.

Do you personally worry when you see asset levels and fixed incomes a different animal?

Because of course, it's interest rate related directly, but equity assets, do you think I don't want to put words in your mouth, sir.

But as the fed drops rates it pushes equity levels higher.

Historically it does that.

So do you worry that there's a bubble forming at the top of some of these equity prices?

Well, as a, you know, personal investor, I could share my points of view, which I'm going to choose not to do.

I think we do look hard at financial stability every other meeting.

We actually have a whole session just focused on financial stability.

And in that we think about everything, we think about valuations, we think about leverage.

We think about interconnectedness, the parts of the the system.

We are trying very hard to make sure we think about that.

But there's so many things that go into financial stability.

It's not just, you know what valuations look like.

It's also are households and corporations and banks, you know, appropriately levered.

What are we seeing in terms of loan losses and the various, you know, institutions, all these things are are relevant to financial stability.

We do try to to look as hard as we can and ask ourselves those questions, recognizing that it's always a possibility that something comes in from left.

Field, I'm not going to get this right.

So I went ahead and printed it off the the the fed chair last week out in Jackson Hole talked about the evolution of monetary policy framework and how to revisit that from what Chair Bernanke put up or set up in 2012.

That seems like that's that's new thinking, at least publicly being talked about new.

So in that same era, or in that same vein, if you were at President Park and does is the fed flexible when it comes to the the target on inflation, is that 2% maybe not attainable?

Maybe there's a new natural level of inflation.

So how does all of this new thinking around the new framework about what is appropriate and what to think about?

So for listeners who may not be as close to it as you and I are, you know, we do have a framework, that talks about how we do monetary policy.

It Bernanke started it in 2012.

The core element of that framework is actually a 2% target.

The 2% target was not defined specifically and announced publicly before 2012.

We all think in central banking it's very good to have a target.

It helps build credibility that people believe you're going to do what you said you're going to do, as opposed to, yeah, there's some level.

Let me sort of think about it and we'll just judge it at that time.

So that commitment to the target, big deal.

And this most recent update, did not change that in any way.

And so, you know, we talked about a 2% target.

We committed to it.

I don't think there's really much doubt about that in and around the committee.

The big change was interestingly, five years ago when we last looked at it, we were under our 2% target, and had been for ten years.

And so there was a lot of conversation about what do we need to do to get inflation back to our target from below.

Today, of course, we're thinking about how do we get inflation back to our target from above.

I'll just say one more thing.

It really helps us to get to 2% if the world knows that we're committed to 2%.

And so, you know, if you're in business, as I, as I was for a long time, and you're setting prices for next year, and you say, what do I think inflation will be a year from now?

The notion of the fed is committed to 2% is helpful to manage your expectation toward 2%.

So again, it's about certainty.

It's about clarity, certainty, predictability for for both consumers and businesses in the marketplace to able to set their expectations.

Does this framework and the thought about how the of the fed approaches this new frame or framework, does it change the.

Oh, I don't know, the balance between the dual mandate between full employment and stable prices.

Well, I think we've in the in the framework that we worked on five years ago, we talked about our willingness to do a moderate overshoot of inflation over 2% for a short period of time to bring expectations back up to 2%.

We've cleaned that out of the framework.

It feels like it's not really connected to the environment we're in today.

And so we've just been much simpler.

Our targets 2%.

We do our best to balance the tools.

And and if you know, we get in a situation where those things are in conflict, we'll take a balanced approach to try to bring it back.

Let me just talk about tariffs for a second.

Are you beginning to see that the manifestation of tariffs in prices now?

Yes we are.

But I'll, maybe I'll distinguish prices from inflation.

So I talked as you know, I'm in the district constantly.

You know, I was in Greensboro on Wednesday.

I'm in Charlotte today.

You're talking to businesses about what they're doing with their prices.

Those who are subject to tariffs, of course, are doing their best to pass it on, whether it be to intermediaries or retailers or and consumers.

And so it shows up in the price consumers that have a choice, which is do I want to pay that price or defer a purchase or switch to private label?

Or maybe, you know, switch to somebody else is not increasing my price.

And so that thing is going on all the time.

So businesses are taking whatever tariff costs they've got.

And they're, you know, they're doing their best to, to minimize that impact.

But what's left over, they're definitely passing on in prices.

But there's been an inflation.

There's this dynamic dynamic where consumers sometimes are paying the prices and sometimes they're not.

So you're seeing in the inflation numbers modest I'll call it impact of tariffs.

You're not seeing, you know, huge impact of tariffs.

And I think that just comes down to where the consumer is right now.

I mean we're not in 2022 anymore.

If you go back to 2022, you know, policy was accommodative.

Consumers had money, whether it was, repressed Covid savings, spending or it was stimulus payments or it was frothy asset markets.

And and frankly, we weren't ready to spend or we were ready to revenge spend, which was the phrase at the time.

And so costs went up.

People raise prices.

You didn't like it, but you paid it.

The consumer today is in a very different frame of mind.

I mean, we are seeing big increases in people shifting from full price retailers to value retailers, from brand names to private labels, from beef to chicken, from vacations to staycations.

And what that means is you're seeing price elasticity happen in action.

And so I don't think it's as easy as to say my costs are going up because of tariffs.

I'm going to pass it on and people are going to take it.

I think the consumer is making choices and that's limiting the impact on inflation.

Yeah, not to get too geeky, but have you seen the so the pricing power is gone from the supplier or the seller to the buyer.

Is that fair to say.

I think it's both.

Which is kind of odd to say.

I put it this way.

Suppliers didn't think they had any pricing power five years ago because of, you know, so many years of low inflation.

Yeah.

And they were not very courageous.

They're more courageous now.

They're passing it on.

Consumers didn't think they had any, buying power three years ago.

It happened.

It was happening everywhere.

Today they're more courageous.

So you've got a emboldened supplier meeting an exhausted consumer.

And, you know, they're going to they're going to have it out.

I will say, you know, I'm going to go a little Milton Friedman on you here.

If there's not more money in the system, then you're not going to get a ton more inflation.

And so that that exhausted consumer is sort of the manifestation of there's not a lot more money in their pocket.

Now, that's not true for all consumers.

The wealthy consumer is still very wealthy, but the low and they don't have the wherewithal to just pay a lot more money.

So where's that going to come from?

That's that's the issue.

Where I know we're going to run out of time.

If I keep chasing some of these down, the independence of the fed, Governor Lisa Cook under fire from the Trump administration.

We're not we're not going to, unpack that because you couldn't anyway.

But the idea is there is there a fear that the fed is losing its independence or may, with increased scrutiny from the executive branch or Congress?

Well, so we get a lot of scrutiny.

You know, the the basic compact that created the fed said, we're going to create an independent fed, because it's better to have these big interest rate decisions made not by the, in the, in the heat of the political arena, but, you know, coolly and dispassionately, because sometimes the benefits are long term and the cost is short term.

And those aren't natural, trade offs that are natural in the political sphere.

So in exchange for that independence, what's happened is the world around us gets to criticize us.

And that would be true of, the political environment, the legislature, the media, the pundits, the economists, all of that.

Sure.

So I don't think there's much new in getting criticized.

And we have to welcome that if you're going to be given the privilege of making policy for the economy, you've got to welcome and frankly, listen to, criticism and, and critiques from all sides.

And I think that's one I'll call it armor.

You get to put on very clearly when you take on these roles.

So to Lisa Cook and not just about Lisa Cook or any fed governor, but if would the removal of any single governor or any governor or the addition of any governor to the Federal Reserve Board, would that impact the market, or would that impact the operation of the fed?

Well, we've had a lot of governors come and go, you know, during my tenure.

And, you know, my observation is, you know, when you show up, you've been confirmed by the Senate, you come into the room, you feel a pretty weighty sense of responsibility.

You've been chartered to try to make the right decisions for the US economy.

And to this point of critique and criticism, you know, two, five, ten years from now, when you're done with your span as a president or governor, you'll be evaluated based on how the U.S. economy did and the choices you made.

And so I guess I have I hope and I expect that whoever walks into these governor jobs is going to have that same sort of weighty sense of responsibility that I have.

Let's talk about the Carolinas economy.

You do travel the district.

The district is larger than North and South Carolina.

North and South Carolina have posted some pretty amazing gains.

I think we all know that.

Certainly, once again, North Carolina is is rightly celebrating the fact that CNBC said for the third time in four years, they are the best state for business.

I think Virginia got the other one.

So my entire district.

So your entire.

District are you are you do do your counterparts, say anything to you about that?

Oh, I think the governors have a, a good hearted, set of exchanges about that.

When, when the number one job goes up or goes down.

But, but but to the point when you look across the district, specifically the Carolinas, do you worry about the overheat of what is going on there, the growth, the capital investment needed, the cost of living rise, etc., etc.?

Well, so one man's, overheat is another man's prosperity and you just have to think about it, I guess, the states in this country are very envious of the Carolinas.

You know, the Carolinas are growing at about 2% a year workforce.

Virginia is a roughly flat Maryland, D.C., West Virginia is down actually year over year.

And workforce, maybe because of the workforce or what's attracted the workforce is housing again, the Carolinas, North and south, kind of both in the top four in terms of building housing.

You know, Virginia would be in the teens.

Those other states would be behind that.

And so, you've got a very positive flywheel going in the Carolinas where, people are moving in.

Employers are seeing that.

And perhaps because they've got housing, employers are seeing that and, you know, adding facilities that attracts more workers.

We build more houses.

I think all that's very positive now, you know, growth that's not well managed sometimes can have negative side effects.

Traffic is a classic example.

And so I've been in places in the Carolinas where, you know, communities are not excited about even more growth.

But I don't know, I think big picture, if you want to, succeed as a, an entity, you know, productive growth is very is a very positive thing.

The issue isn't have less growth.

The issue is make sure you're managing the second or consequences so that you don't create that kind of resistance.

So it's a good problem obviously high class problem.

But but the idea that you've got Jet zero or Scout motors or any take any announcement and is there is there a disconnect between those jobs that are being posted and the talent that are chasing those jobs?

The imbalance there is, is that a concern?

Well, there will be.

And I mean, I'll throw AI in here as well.

I mean, you know, we're in this interesting situation as a country where, you know, we're still growing, but, the jobs that are growing are not necessarily the jobs that everyone wants to do.

A great example is the care profession.

We're going to need more elder care people.

We're already short child care people.

Nurses and teachers are an issue.

Those are jobs that, you know, probably aren't going to be, replaced by AI, right?

On the other hand, you've got a lot of folks who, you know, maybe worked in big companies doing, you know, data gathering and research that might end up being displaced by AI.

Are those people going to want to go in the care professions?

I think that's, you know, the big kind of issue, not dissimilar from what we went through in the Rust Belt, 20 years ago.

The jobs that are coming, that, you know, you mentioned Jet zero.

It's going to Greensboro.

Greensboro, of course, has a, pretty sizable I'll call it avionics sort of ecosystem.

That's all very attractive, but I'm sure they're going to need more people with those kind of skills.

They're going to have to invest in it in an environment where demographically, you know, we're not really growing the workforce.

We're gonna have to think really hard about it.

How do we get people excited about and trained for these kind of jobs?

And I want to put those two together because there's a lot of work that's being done.

On the training.

A lot of the community colleges or technical schools, you know, investing in, in that kind of trades training.

But you got to get people into the programs and particularly in manufacturing, where you had a generation that was in manufacturing and got laid off.

Right.

It's not at all clear to me that that next generation thinking about the NPV of that job is as excited about it as people think.

And so where's the job security?

Are the kinds of questions that people are going to ask before you can get people excited about it?

Truckers is the example.

I like to keep using it.

We know we're short truckers.

People say you can make a lot of money driving a truck.

That's all fine.

But if all we're talking about is autonomous trucks.

Oh, that was the question.

Then why would someone go make their career and truck?

And so I think the folks who are trying to hire for these jobs are going to need to paint a picture, not just of what the job looks like today, but what the career path looks like tomorrow.

Do you think the autonomous fear or the I fear has people paralyzed about chasing down maybe a new career because they're worried about, well, it's going to wipe out this.

It's going to wipe out that.

We're definitely seeing an environment where quits or down, voluntary quits or down.

Interesting.

Part of that is because companies aren't hiring as much.

And so the job prospects don't look as good.

But I think there's this goes back to the recession conversation we had earlier, where it's not just employers that have been predicting recession, it's employees.

And you don't want to get out in the market and then find yourself stuck in a world where you're not sure where the next job is.

And so it's a little clogged, I'll say.

That system.

Is there.

We've got less than two minutes left, sir.

And is there one data point that you will always look at?

You always make sure that that's one of the ones that you survey.

When you start to get your head around how you're going to feel and how you're going to vote in the future about the rate cuts.

Well, so we're in a world of a lot of uncertainty and I'll say the data I look at has to adjust to the world I'm in.

So right now where we've got this low, high or low fire environment, I'm really nervous about whether that would shift.

And so I'm looking at initial unemployment claims, which came in yesterday, again, relatively low as an indicator for, you know, whether, there's something's going to change in the job market on the consumer side, on the business side and spending side, I look at consumer spending and I monitor weekly credit card spending, you know, year over year credit card spending, debit card spending.

What's that doing as an indicator of whether consumers are continuing to spend?

So those are my two.

Linchpins right now.

Okay.

But we could end up in a world where I could watch other things.

So, 20s, what do you see in and credit card debt and personal debt.

Debts, high and absolute levels, but not in relative levels.

And so one of the things people don't understand is that, household leverage came way down after the Great Recession, and it's still way down.

And so, of course, there's some delinquencies and low, lower income folks, and that's not a good thing.

But overall, credit card debt as a percent of GDP is not all that high.

Thank you.

It's encouraging and probably where we need to end.

President Bachmann, always appreciate you taking time to be on the program and being open and candid enough with your answers.

So thank you.

It's great to be here, Chris.

Thanks for doing this.

Thank you.

Until next week, I'm Chris, I hope your weekend is good.

Back to work.

School's out and school's in.

Good night.

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