Tom Barkin, Interview: Associate Press (Transcript)

Inflation – 5/10/23’s CPI Report

“Inflation remains, I’d call it stubbornly high. The headline and the core were about as expected, but if you just look through any one report, and you focus on the core, which is probably the best place to look, month after month after month, it’s coming in at .4%, .5%, or .3%, where you’d really like it to be moving down and in concert with our target.”

Inflation

“I think the core story now is the demand story. And what it says is, the combination of waning fiscal, eroding consumer balance sheets, or the lag effect of rate moves and credit tightening coming in the banking system, is going to bring demand down and consequently inflation. And I think that’s a plausible story.”

“I’m still open to the notion that demand is settling and inflation will follow in relatively short order, but I’m really quite attuned — I wouldn’t say I’m convinced yet. I’m open to the possibility. I’m looking for evidence and the reports coming over the next period of time.”

Fed Funds

“Just the timing of the round means we’re going to get between meetings, two CPIs, two job reports, in addition to all the normal monthly spending things. So it made me comfortable with data dependence, so that’s what I think the message of the last statement is in my mind, is that — it’s explicitly not — explicitly not a pause or even necessarily a peak, it gives you the optionality to do more, if you need to do it. And also the optionality to wait if waiting is appropriate. So there’s a lot of data coming in. There’s a lot of uncertainty and I think it gives me and us the time to take all that in.”

“My hypothesis is that we’re at restrictive levels … if you don’t see demand weakening, if you don’t see inflation start to come down, then you do have to ask yourself whether the level of restrictiveness is sufficient or not.”

Recession

“It’s easy for me to imagine a slowdown that turns to negative GDP growth, this year or next year. But we’ll have to see. It’s also conceivable that it wouldn’t and so I think that’s the challenge you get when you go out two or three or four quarters, is a lot of these outside events are going to dictate it more than, if you will, the model-based estimates of what lagged rate moves due to GDP and spending.”

Jobs

“I think what’s interesting is, for the most part, people being laid off are professionals, support and overhead. They’re actually not laying off a lot of frontline people … it’s easy to imagine that this might be a different sort of softening labor market, one that hits college graduates more than the last one, which hit the less educated.”

“The unemployment rate might not be quite as good a metric because this group doesn’t file for unemployment at the same propensity as an entry-level worker. The impact on spending might not be the same because this group often has savings, that support their spending while they’re in job transition. So it’s just interesting to think about.”