Tom Barkin, Interview: Richmond Fed Podcast, Inflation and the Fed’s Response

Inflation

“On the inflation side, most estimates are that it takes another six to 12 months before these demand pullbacks quiet the rate of inflation. With demand slowing but still resilient, labor markets healthy and the added and unfortunately enduring shock of the war in Ukraine, it shouldn’t be a surprise that inflation — while likely past its peak — is still elevated. That, of course, is what makes the case for us to stay the course.”

“So you might ask, “Boy, the last three months inflation prints have been a lot lower. Doesn’t that mean we’ve got the problem solved?” I’d caution that while the average has dropped, the median has still stayed high. That’s because the average has been distorted by falling prices for a few goods, like used cars, that escalated unsustainably during the pandemic. I saw one commentator celebrating that the core CPI less shelter has declined over the last three months. But, of course, we all know what people care about. They care about food and gas and shelter. Until we’re confident that the things people care about are under control, I think we’ve still got a ways to go.”

Recession

“I read somewhere that this has been the most predicted potential recession in memory. Honestly, if you go back to the middle of the year, the data was coming in negative and so it looked like we might be headed into one. But if you look at the data we’ve seen over the last six months — whether it be spending or investment or employment — it just keeps pushing the timeline out.”

What are you keeping an eye on?

“We have seen three good months on the inflation prints. I’d like to see them continue. Is inflation calming? That’s really the core question for this year.”

“I think underneath that, I want to understand the labor market. Is it cooling? What’s happening to wages? What’s happened to employment? Underneath that, I want to understand what’s happening to the broader demand, particular for companies who may or may not be thinking about increasing prices.”

“Beneath all that is this question of how much of the pandemic-era economy are we going to be left with. I’m not just talking about working from home. I’m talking about spending on goods versus spending on services. I’m talking about the vitality of in-town retail versus suburban retail. There’s a bunch of stuff we adopted over the last couple of years that may or may not lead to a different economy going forward.”