What It’s Like to Be a Fed President at Jackson Hole

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1:24Hello and welcome to another episode of the All Thoughts Podcast. I'm Traci Allaway. And I'm Joe Weisenthal. Joe, we are here at Jackson Hole. We made it. I love it here. So this is the annual economic symposium held by the Kansas City Fed. And it's sort of a gathering of central bankers and policymakers. And the idea is that, A, it's a chance for them to talk about the sort of pressing issues facing the global economy and maybe their individual economies. It's a chance to go over academic literature and talk about ideas. It's also a chance potentially to guide monetary policy, at least for the Fed.

2:04Right. So this is what people generally know. The Fed chair gives a speech. But there's also a bunch of, you know, like in theory, and I suppose in practice, but in theory, it helps policymakers, central bankers around the world make better decisions in real time if they're up on the theories or if they're up on what's happening in academic work and what research is being done in economics. And so, for example, the theme of this year is monetary policy transmission, which is another way of saying how does monetary policy actually affect the real economy? It's kind of a big topic. Yeah. But there are a lot of questions about that.

2:38And how the Fed is, say, going to proceed with the rate cut cycle? Well, you would want to know what rate cuts actually do before that might guide you. So it makes sense to sort of convene everyone here, talk about the latest research and what monetary policy actually does. And then maybe that can make for better short-term decisions. Absolutely. And it sort of begs the question, I guess, what is it like to be a policymaker at Jackson Hole? So you and I are coming at it from an outsider's perspective, obviously. And I should just say, for people who don't know, there's only a handful of journalists, basically.

3:14Like five. Yeah, who are allowed in the room where all these discussions happen and where Powell's speech is actually given. And everyone else is sort of milling around outside learning by osmosis what's being discussed in the room. And so I'm really curious what Jackson Hole is like for an actual central banker. Totally. I have to say, like when I go to conferences, you know, I'm like everyone else. I just want to like hang out in the lobby and chit chat with people. I don't actually like want to hear panels and stuff. So I sort of like that from me and you perspective, we don't have to feel guilty about that going into the panels and listening.

3:51because we aren't even given the option in the first place. So we can just hang out in the lobby and the lodge and not feel like we're shirking our job. Yeah, we physically can't try to gather information like normal journalists because the Secret Service will stop us from entering the special room. That's right. Okay, well, I am very happy to say that we do in fact have the perfect guest, someone who's been on the podcast before. We are going to be speaking with the president of the Richmond Fed, Mr. Tom Barkin, And he is going to tell us what it is like to actually be here at Jackson Hole as a Fed member.

4:26And it's great because for people who remember the last time we talked to Tom Barkin, we went on a trip with him to North Carolina. And so it's essentially the two sides of being a regional Fed president, the job, right? So one part of the job is to understand what's going on in your district. And Tom does that in various ways. But then the other part is essentially, we're not in DC, but the quote DC part of the job, where then you take the information that you learn and talk to other people and stay up to date on the latest literature and all this. And so we're going to learn what it is that they really do here.

5:02Okay, let's do it. Tom, welcome back to the show. It's great to see you guys again. It's nice to see you in as lovely a setting as Jackson Hole, Wyoming. Although Mount Airy was great too. Oh yeah, yes, absolutely. I'm thrilled just to be out of New York City in general. But okay, let's talk about Jackson Hole. How many of these have you actually been to at this point? It's my seventh. Oh, wow. Yes. And in that time period, have they always followed a similar format? Yes, the format has always been the same. Other than I say I've been to seven during COVID. I know we canceled one in 2020. But even that one kept the same format.

5:39It's an academic conference. And so the chair will give a speech. They give a couple of papers. Then you have dinner. Then they wake up the next morning. They give a couple of papers. Another central banker gives a speech. And then you move on. I know that someone gives a paper that they've worked on. And then there are some official discussants who may have some respondents. And then people ask questions. What do you do? Do you pipe in with any questions? Do you challenge them and put them on the spot? There's a lot of people out here who try to do that. I've got a different agenda. They quite intentionally do these around monetary policy topics.

6:13So today, one of the papers was about the relation between inflation and unemployment and whether that's changed. And I'm looking for good ideas for policy. So I'm looking for people to put something on the table that I can say, hey, now that's an interesting idea that supports something that I've been thinking, or that's a different way of looking at something. So I'm a customer of this. And there's a lot of people who, it's just like college, there's a lot of people who sit in the front row. That's probably not me. The other thing I wanted to ask is the materials for the actual conference. So we don't see them until they're sort of like drip fed to the public.

6:45Do you get them in advance and you can read them and think about them before you actually arrive? Absolutely. I got them about two weeks ago, probably four 60-page papers, appendices, charts, regressions, all that stuff. I read through them. And my team also reads through them. And we actually do a whole briefing session the week before where my economists will say, I really like this paper. Here's something that somebody needs to ask this question because I think about it differently. And so I'm sort of zoned into the papers before they come. Academic conferences have this other tradition, though, the discussant.

7:17And so someone will give a paper, and then somebody else who's done research in the exact same field will give their view on the exact same topic. It's almost never the same. So you do get a little bit of this back and forth debate, which is very helpful if you're trying to think, as I do, about how to make sense of policy. This is a question that many of our listeners have, so I'm relaying it to you. So there's the bar here, there's a restaurant, there's hiking. What do you do when you're not in the room? And when you're, say, on a hike with some other central banker or maybe someone from a different country, are you talking about economics?

7:54Or are you talking about, wow, did you see that bald eagle out there? Did you catch that, see the moon last night? What do you guys talk about? So as I said, the agenda is pretty set. There'll be three dinners. and then in the afternoons, there's a hike. And so after the dinner, sometimes you go to the bar and sometimes you don't. There's lots of opportunities to make new relationships and connections. There's central bankers from around the world here. And when I'm talking to a central banker from Argentina, I'm talking about the Argentinian economy because I'm interested in it. And we don't have the same kind of backgrounds and our kids don't go to school together.

8:28So that's kind of business. Now, when I talk to people that I already know, then we could talk about most anything, tell stories about whatever. But I think these other central banks, I mean, it is very interesting to understand how the U.S. is seen from other windows and how those economies are. I talked to someone from Germany yesterday. This is going to make me interested, but not yours. Our savings rate went up at the beginning of COVID to about 15 % or 16%. Same thing happened in Germany. Our savings rate has come down to about 3.5%. Theirs is still at 17%. Really? So why are German consumers not spending the way American consumers are?

9:03That's an interesting topic and something we spent some time on. It's the kind of example of the kind of thing. Well, so the thing that really makes it crazy interesting is there's a whole social safety debt in Europe that doesn't exist here. And so most of the time you think people are saving for retirement. They're saving for a rainy day or they're saving because they're worried about losing their job. Well, in Germany, they kept everyone's job during the pandemic and you've got a pension. So why are they saving? And I think the best explanation I've gotten, it's actually something on my list to study going forward is there's just a lot more precautionary feeling about the situation in Europe, the risk versus the Ukraine and what's happening over there.

9:42And it's just a culture that maybe just gotten a lot more cautious due to geopolitics, if nothing else. That does sound really interesting. By and large, I mean, obviously, the situation in the Argentina economy is radically different than it is here in the US. Germany is probably still, you know, all things considered similar cyclically to the US. Does it feel like by and large, at least among like developed countries, central bankers, that there is a strong set of common mysteries perhaps, or are they really like everyone's sort of seeing different things in their own country? I mean, I'm sure it's a mix of both, but how much of a global factor is there?

10:21Much more in common than different. The whole practice of central banking has been, I'd say globalized over the years. And central bankers really do think about inflation targeting, for example, same ways. And there are banks like New Zealand and Australia that back in 2000 or even before that set inflation targets before the rest of us. And we learned from them. And so there's a lot of learning. There's a lot of discussion. I think there's very much a common framework. Now, the economies are very different. I mean, the US economy has come through this unbelievably well. The European economies have not.

10:53And so we have a much stronger economy. So much of our economy is services. So much is supplied to ourselves. A lot of this deglobalization has felt much more on the European side. The challenges in China right now are felt much more on the European side. And then emerging market countries, they really just are worried we're going to increase rates further and they're going to end up offside. And so they're very dependent on our strength of our dollar and the weakness of our dollar.

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12:46Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokered services for U.S.-listed registered securities, options, and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA, and SIPC. Crypto trading provided by ZeroHash. Complete disclosures available at public.com slash disclosures. When we were with you in North Carolina, I remember we talked about the process of putting together the statements for the FOMC meetings.

13:21And we're here at Jackson Hole. Every year, the Fed chair gives a speech. What's the process like for putting together that particular speech? Well, it's his speech. So I'll let him talk about exactly how he does the process. But I've talked to him before, and I know he thinks about it for months. I mean, this is a big speech on a global stage. It's gotten a certain amount of cachet to it. And he thinks hard about what he wants to say and how he wants to say it. And he writes the speech. And he'll consult with who he wants to when he does that. But it's his speech, and it's his conversation. Were you surprised?

13:55So, you know, the markets were a bit surprised by the forcefulness with which Powell really just focused on cutting off left tail outcomes for the labor market. And it's clear that the big shift has happened. And he very explicitly said, we do not have any aspirations to see a softer labor market. And in some sense, it's softer than it is in 2019. Were you surprised? I don't know when you first read the speech, probably before us. Were you surprised? He gets to write his own speech. to the society wants to. Clearly, people were taken by surprise. Otherwise, we wouldn't have seen the big market.

14:29I think the economy, since we were together three or four months ago, the economy has moved in a very different way. First of all, on the inflation side, I might have even said four or five months ago, I was looking for inflation to sustain and broaden. So it's sustained. We've got very low readings for four months in a row. And it's now across the basket, whereas six months ago, eight months ago, it was really just in goods. And so the concern about inflation reaccelerating has definitely come down significantly. At the same time, the labor market stats have also softened. And so the phrase I've been using is people aren't hiring, but they're not firing.

15:03And that's just not a high likely sustainable outcome. Either demand will continue and people will start hiring again, or you'll start to see layoffs. And so I think there's more concern on the labor market and less concern on inflation relatively, and we've got a dual mandate. So I think if you look at the minutes that came out a week ago, they'll give you a pretty good sense of where the committee was. And I think, as always, Jay speaks thoughtfully and responsibly for the committee. So one of the reasons we like talking to you is because you go out and you speak to companies about what they're actually doing in an attempt to figure out what that means for the economy.

15:38What are you hearing from companies right now versus, say, April, when we last spoke to you. Was it April? Yeah, I think so. So consumers, you hear a lot of talk about people saying that consumers weak and people are running out of savings. That's not what I'm hearing. What I'm hearing is consumers are still spending, but they're choosing. And the way I think about it is they now have the time to, when they go into a store and they see something that's at a price they don't like, to say, I think I'm going to do something else. And so if you look at Walmart's results, they would talk about people trading down.

16:11If you look at Target's results, They talked about the kind of reaction they're getting to lower prices. McDonald's results in the$5 value meal. I've talked to hotel chains that every room is booked, but they can't raise price at all because the second they raise price, people just won't buy it and won't book it. I talked to a fast food leader who's rolling out software actually to encourage their franchisees not to raise prices anymore. That's a first. Counter trend. So I really think what's going on is prices are up. People are aware of it. And people are reacting. Two years ago, you were just outspending and you just wanted it, or you needed those Taylor Swift tickets.

16:48You always like it when I bring Taylor Swift back. But I think today people are making choices and they're spending money where there's promotions, where there's discounts, or they're moving from beef to chicken, or they're moving from Kroger to Walmart. Do you still hear from companies that have vacancies unfilled? What's going on with that? You do hear vacancies. It's narrower. So it's really places with skilled trades, nurses, mechanics, auto mechanics. Those are the kinds of places where people are still hiring. And small towns. And we were together in a small town, but you just don't have the same supply of labor in small towns.

17:26That's where there are vacancies. And when I'm talking to the bigger companies, what they're telling me is, I'm just kind of slowing down the hiring. I'm going to let attrition work my workforce down. I don't want to fire people because I don't want to end up short again. But I'm just going to slow it down. And then I've been pressing them. And I've been saying, but do you have plans for layoffs? Because if you're going to do a layoff, it takes you three months to get it done. And no one is doing that. Right? I mean, one person here or there. And so that's why I say we're in a low hiring, low firing mode.

17:55that doesn't feel like something that's going to persist. And so it's going to move left or it's going to move right. We'll just have to see. What's the urgency then on supporting the labor market? And there's obviously a debate going on right now about how fast deterioration in that market actually happens. We had Claudia Somm on the podcast recently, and she was talking about maybe it's different this time. But how are you thinking about the pace or the rate of change in the labor market? So the other thing that's happening in the labor market is a lot more supply of labor. And part of that is participation, prime age participations hitting 20, 25 year highs and immigration, which is up significantly.

18:35And so the last jobs report where unemployment went up from 4.1 to 4.3, you actually added jobs, 114 ,000 jobs. We just added 420 ,000 people to the workforce. So the denominator got bigger. And so there's some people who look at the unemployment rate and say, oh my gosh, the labor market's about to fall off a cliff. That's not how I see it. I see a loosening labor market being driven by a lot more supply. Now, what's the urgency? It's not, we're not in a situation, I don't believe, where there is this big cliff there. But when we make policy, you're trying to make it for a year from now, right?

19:11Because the lags in monetary policy, you're trying to meet a year from now. And so you've got a labor market, which is slowly cooled, and you've got inflation, which is now gradually cooled. And so you sort of say, well, which do I worry most more about? And it's been very clear for the last two and a half years that all you'd worry about is inflation. And now those are much more balanced. And then you ask the question, OK, we've got rates in restrictive territory. Real rates, if you look at the financial markets, are a little bit over 2%. Maybe you can take a little bit of the edge off that. That's, I think, dialing down the level of restraint is the way I think the chair says But you can take a little bit of the edge off that in a world where your risks are more balanced.

19:48That's how I think about it. I'm going to try to keep pushing you on this. Well, this will be fun. You'll ask me the same question five times. Yeah, we'll see if I can get a slightly different answer each time. You know, there would be one school of thought that would say if you're concerned about potential weakening of the labor market, that the current low-firing hiring is unsustainable and the risks have shifted to the labor side, that you want to start the rate cut cycle and make a statement, and maybe that would mean 50 basis points, versus, say, easing into it with maybe a few 25s strung out.

20:24How would you think about the different possible paths that the Fed can now take to reducing the risks of a bad outcome in the labor market? To me, the question is all conviction. What are you convinced of? And the stronger your conviction, then the more forcibly you move, whether that's raising rates or lowering rates. And then the more that you're in a test and learn world, I think the more you say, let's move gradually or deliberately or methodically, whichever your favorite word is. So to me, it's about conviction. How convinced are you? In the scenario you just painted, you were extremely convinced, even convincing, if you want to put it that way, in terms of what you were trying to do.

21:02I think we'll learn more as the year goes on in terms of the data. In the same way that we did when we started raising rates with inflation, we started small and then we got convinced that inflation was not going away and you had to move faster. So the more convinced you are, the faster and more forcibly you could move. And what scenario are you convinced of right now? Well, I've described where we are right now, which is we've got risks on the inflation side still, and we've got risks on the unemployment side still, and we've got either one of them could go in both ways. So I'm very much a test and learn kind of guy in general.

21:34And we'll obviously learn a lot even before the next meeting. So we'll see what we learn. You mentioned data just then, and this has obviously been a big theme for the Fed, which is the idea of data dependency, not data point dependency to refer to how Powell has described it. But I guess my question is, how much confidence do you have in the data right now, given that we've been talking about and debating things like sentiment surveys for a couple years now. So I guess in this time in 2023, there was all the talk about the vibe session. And if you looked at the consumer surveys, people were basically describing the way they felt as if we were already in a recession.

22:19And then setting aside the surveys, even the hard data seems to have a question mark over it at the moment. We just saw that massive revision from the BLS. So how much confidence do you have in the data? And how are you sort of thinking of interpreting at the moment. So we do an SEP every quarter. And one of the questions is about level of uncertainty. And to me, that always fits into how confident are you feeling about what's happening in inflation, what's happening in employment. I actually think the data has come in in a very consistent way on both sides of the mandate over the last three or four months.

22:53I mean, I've talked to you about inflation, which has come down and broadened. You now have the percent of price increases over 3 % or over 5 % going back toward pre-COVID norms. And that's very consistent with what I'm hearing with businesses and consumers as I'm talking to them. So what I think I'm hearing on inflation is very consistent. Same thing on employment. The labor market is loosening. It's definitely not overheated the way it was before. It's definitely not a problem either. This low hiring, low firing is a perfectly fine place to be. We're still adding jobs. So I think in both cases, the data is coming in very consistently, and that gives me confidence.