Tom Barkin, President and CEO of the Federal Reserve Bank of Richmond

No. Well, I mean, one of my little metrics as I travel my district is can I show up in a room and find myself with a hundred friends? And that's how I feel here. So many of you I've had the chance to meet and be with over the years. So, thank you for coming.

Oh, great. Let's see if we can... I haven't checked my phone in an hour, so I don't know.

Well, I talked to lots of businesses. And last year when I was here, that's exactly what I said, which is, you know, it's hard to drive through fog. If you put your foot on the gas, you're going to go over a cliff, and if you put your foot on the brakes, someone's going to crash into you. And so, people were pulled over on the sidelines. And I do think that's a shorthand for last year. I'd say when it comes to hiring, that's still the case. Whatever combination of caution about the future, thoughts of productivity you could enable out of AI, those are still keeping people by and large out of the hiring market. But I think the investing market has turned fundamentally and the people I talk to basically say this is the new normal and I've just got to deal with it. So the baseline is we're going to have volatility, I'm just going to have to get to the other side of it. That's of course been enhanced and empowered by AI because there's a big set of investments out there and you just got to make it and the companies in that space are investing, you know, a trillion dollars in the future. And so, we're seeing investment levels first half of the year more than double what you'd normally see. Double digit kind of investment growth levels. And that's just, you know, where we are, I think. Oil prices up, down, up. People sort of assume they're going to be up. Tariffs they were on. You've had refunds. You've had the Canada thing. People assume you're going to have tariffs and tariff changes and they just have to get to the other side of it.

Oh, did you want direct answers to direct questions? I didn't realize that's what I was supposed to do.

Okay.

Okay. So, Federal Reserve system is Washington, that's Kevin Warsh and the board of governors and there are 12 individual reserve banks, one of which happens to be in Richmond. Each have a district. My district is Maryland, West Virginia, DC, North and South Carolina, and Virginia. In that job, I do three or four things. One is I am a member of the Federal Open Market Committee. So, we do vote on interest rates, and that's what gets the news, and we've got a research department. We're trying our best to understand the economy every day. We oversee the banks in our district. So, you know, the biggest banks in our district would be Bank of America, Capital One, Citizens, Truist. But we've got 170 other smaller banks. We operate the payments rails or a big part of the payments rails for the country. So, the ACH system, there's a cash processing operation. If you ever want to come visit, there's something just fundamentally enjoyable about being in a room with a lot of cash. Parenthesis, you can't take any of it with you. And in Richmond, we oversee technology for the Federal Reserve system. And so, all of the cyber issues you've got, all of the data center cloud issues, all those come through Richmond as well. So that's what we do. I'll also say that if you drive down 95 and you go through Richmond and you look to the left on the river, you'll see our building and it's a gorgeous and quite literally ivory tower. And so when I took the job, I told my board, and Barbara serves on it. Thank you for your service. I said, if you want someone to try to understand the economy from the building, I'm the wrong guy. I think you want somebody, you know, who's going to go in the market. And so what I do every week is what I'm doing this week. I've been in Baltimore. I've been here. I'm going to Frostburg this afternoon. I'm in West Virginia tonight and Friday. In each of these, I'll do small roundtables, big roundtables, talk one-on-one to businesses and try to understand as best I can what's happening to demand, how people are thinking about pricing, how people think about investing and hiring just like we're talking about. And that doesn't mean you ignore the data because the data tells you something, but it does provide I think a pretty vital check and balance against a bunch of data that comes in late, it's revised three times, survey responses are down, and you often get a ton of insight, too. And so that's what we try to do.

Great question. I should have said one more thing, just advertising on your tables is a survey form and so we do a bunch of surveys too and those of you who have something to give, if you're interested, you know, join our survey stuff. We get information from that too. So, the district I described, the number one most important difference is of course this metro area. I mean, nobody else has DC and certainly as we've gone through the last couple years and I go to FOMC meetings, I talk about what's happening in this economy because it has been different in this economy than has been in large parts to the rest of the country. The rest of our district, you know, hurricanes hit us more than normal. Well, I mean there are differences, but I think the DC metro's the biggest difference.

Well, there was a lot in that question. I mean, the overarching DC Metro topic of course is the question of, you know, where the federal government is allocating its spending. And so, there's sectors, you know, defense would be one that have not been hit as hard. There have been sectors, you know, folks in the climate or nonprofit world, education world that have been hit more. I'd say, you know, if you go back a year, we were in the immediate DOGE era and most everyone I talked to was depressed. I'm not saying DC was in a depression other than emotionally, but emotionally people were very depressed. I had Mary sample the crowd. I think what's the answer? Weary. People were cautious and wary today. I think it's sort of come back, but it's still I think a lot of weariness about, you know, where that spending is going to go and how the city or the region is going to recover. One number that I track pretty closely is workforce growth or population growth. I mean, it's hard to grow an economy if you don't grow the workforce. And in my district in North and South Carolina, those are two of the four biggest workforce growth states in the country right now. They're growing about 2% a year. That's people moving in. DC and Maryland actually have been shrinking the last couple years. In Virginia actually in the most recent numbers took a step down as well. And if you know workers are leaving your community for whatever combination of cost of living or job prospects or whatever matters then it's really hard to grow an economy. I still remain fundamentally upbeat because this is the greatest place to live in the world and so people are going to want to live here. But I think it is, there is this sort of mix of jobs and cost and momentum that over time have to get rebuilt.

Well, you know, you sort of run, I guess on the policy side, you sort of run a daily refresh of a mental model. You know, I walk out of a meeting, we just raised rates the last meeting. I have some thoughts about where I think demand is and supply is and pricing and everything else. Then I go have all these sessions and we bring our board to be together a week or two before each meeting and it's I'll call it my last sanity check of what I'm actually hearing. And so we do try to have a diverse set of members on the board. I was on the board in Atlanta. That's how I ended up in this business. And it was an unbelievably interesting experience because you do hear from all these industries. We had a hospital CEO on during COVID and he was talking about, you know, when he thought the thing would pass. And as you, you get a lot of checks and balances. And I really do use it to sort of test my assumptions. And one of the skills that's really hard to be good at is believing that you're not always right. I'm not great at that. You guys are probably all better than I am, but I think it is helpful to have people you really respect who will tell you, 'What are you talking about?' You know, we're not investing or we're laying people off or we're hiring. I mean, you're going to learn a lot if you get the right people in the room.

Uh, what happened to... Okay, so she started with new leadership, so I thought I was going to get a question on that. Well, let me... You started with new leadership, so let me just say, I have the deepest respect for anyone who would be foolhardy enough to take on the leadership of the Federal Reserve system. I like to describe it, if you like a log flume. It's kind of like riding a log flume. And if you remember the last time you were on a log flume, you go slowly up the hill, the last ramp, and then you go full speed down into a pool of water and the pool of water comes and soaks the guy in front. That's Kevin Warsh or Jay or J-Pow. The rest of us are in back. Our hands are in the air. We're having a great time. But that's a hard job.

The... Kevin did do a very clever introduction to his speech where he said, you know, Jackson Hole is a great place and for those who've been there, it's a great place to hike. And you know, all of a sudden, everyone kind of raised their eyebrows.

He sure looks like an athletic leader. I don't know for sure what he does for sports, but I'm sure he does a lot of them. I will say as best I can tell, he's full on the job. I mean, it's a big job. You've got to, you know, get your hands around what's sometimes an unruly committee of people. You have to master the dynamics of what's going on. You come in from the outside. You're joining a race in the middle of it, not at the beginning. We have all kinds of issues that go on, whether they be, you know, outages in the payment system or what's happening in supervision or policy changes. And so, you know, it's a big job. I don't know if he's had quite as much time for recreation as you might imagine.

Well, so it's... I think Jay once called it a curious balance. The unemployment rate is 4.1%. For those of you keeping score at home, in the hundred years that we've measured the unemployment rate, we've never had more consecutive months of unemployment below 4.5%. It's the all-time record. Well, sure doesn't feel like that, but that's an interesting stat just to reflect on. Initial unemployment claims, people filing for unemployment insurance after being laid off. That's in aggregate numbers where it was in 1969 when the labor force was, you know, whatever 40% smaller. So, there's no carnage in the labor force. In fact, it's pretty stable. That's the good news. The bad news, as I said earlier, is people aren't hiring for the most part. And so new job growth is relatively slow. There's lots of caution in the workforce. New college grads are having trouble getting jobs. All the things you read about. And so, how do you mentally put those two things together? You know, I'd say two things. One is, the quit rate is extremely low. So, there's just fewer vacancies. Turnover is down everywhere. The quote is people are hugging jobs. I think that's people are worried about the future and so they're not leaving. So that cuts the hiring. That's one part of it. But the second part is that the denominator has been going down. You know, the baby boomers, my generation, are aging. I'm not, but they are. And retiring. And it's not just people turning 65 and retiring. It's the cohort of baby boomers are now between 62 and 80. And every year that cohort gets a year older unfortunately. And you know, the 67-year-olds work at a certain percentage, 68-year-olds work at a lower percentage. 77-year-olds work at a certain, you know, and so you've got a million, million-three a year leaving the workforce just due to demographics. So that's a big drop. A million a year is like 100,000 jobs a month, right? And then immigration, you hardly get good numbers but call it 2 million a year fewer people coming into the country. So that's another 170,000 a month. So you're talking sort of 300,000 a month of jobs that we used to create and fill that we now no longer create. But the good news is we don't have 300,000 of those people looking for work. So we're in balance, but it doesn't feel as dynamic as you might hope because we don't have all the job gains.

Well, so everybody, especially if you're a large public company, you have to stand up and say that AI is fundamental to our business and it's transforming it. Everybody's doing that. I think excitement about AI is broadspread but it's most intense in the concentric circle around Silicon Valley and then it gets a little bit less intense there. There are use cases that are real and are driving productivity. Coding would be a good example. Call centers would be a good example though I had a pretty bad experience with my Lyft call center last week. Bot in the call center. Compliance documents that have, you know, big long paper you got to fill it out. Engineering. I mean, there's lots of use cases. I don't think those use cases are yet leading to the headcount Armageddon that people fear. And the reason they're not is in part many of them are immature. You know, I'll talk to lawyers who will tell me stories of people filing briefs with citations that weren't accurate that need to get better. Tony, I think I actually heard that one from you. So, you know, what's that? It wasn't yours, it wasn't. So, there's immaturity. You know, that's part of it. Earnings are very strong. And, you know, I don't mean this in a bad way, but when your earnings are very strong, your motivation is not to lay people off. It's actually to reinvest people in growth. And so, it might be a different environment if earnings were less strong. But, when it comes to coding, you might have a much more efficient coding, but everybody's got a backlog of technology projects. So they're using the increased coding capacity to do more coding. So all of that has led to a... and I think that the unit of an AI-enabled task is not precisely the same as a mid-level manager and what they do. And so people just haven't yet sorted out how to move from a task being made more efficient to a staffing model being made more efficient. It'll happen in time and yes, there'll also be jobs that'll grow and all the rest of it, but you know, I think there's a lot of talk about, you know, the AI apocalypse, but I think we're clearly not yet there. And, you know, I think there's a lot less fervency in the conviction that we're going to be there than there was six months ago.

An interesting one story I'm hearing more and more is can AI actually enable people into the workplace who otherwise would not have been enabled. And so my simple version of this is an auto mechanic. I don't know anything about fixing a car, but I assume that the best auto mechanics have a mental checklist. If you've got a rattle under the hood and you bring the car in, they look for a rock, they look for a loose valve, they, you know, go through the list. These are jobs that are very hard to find trained people on. But, you know, could a person who's maybe not technically as good as great get great with an AI assistant right next to them, helping them think through all the things you do. I think that actually could get a lot of people in off the sidelines into the workforce into some of these jobs that are pretty hard to fill.

Well you say my research team has a view. We did a presentation. One person on my research team has a view that she shared and if you've got one economist on my team agreeing on something then you have one economist on my team agreeing on something. I'd have to come up with the letter but the point she was making is the upper part of the K-shaped economy point is totally legitimate. Wealthy people in this economy have more wealth. It's mainly asset price driven whether that be house or bitcoin or equity values or whatever and they're spending that wealth and you can see that with World Cup tickets or whatever your favorite story of the summer is, first class seats to Europe or whatever. It is also true that the inequality gap between those the best off and those who are the least well-off has expanded. And that's true. You know, the 10% versus the 90%, that's true. The 1% versus the 10% versus all of that's true. And so if your K is a firm of these people are doing better than those people, okay, I think that's also true. The point she was making is that the people at the bottom end of the pyramid are not worse off than they were before. In fact, they're actually a little better off. So, she was arguing that the bottom part of the K, they're not sloping down. They're sloping sort of level. And so, you could call this a little bit too much argumentation about the slope of a letter in the alphabet, but I think it's an interesting thing to reflect on because, you know, take your average entry-level worker. Maybe it's somebody who worked at Arby's. Well, Arby's minimum wage five or six years ago was, I don't know, $12 an hour. Today it's probably $17 an hour. So they're actually making more. And yes, inflation has expanded, but she was making the case that their real incomes are actually better than they were before. And so when we say the worse are worse off than the well-off, that's absolutely true. When she says the worse are worse off than they were before, she was challenging that assumption. So that's I think it's just interesting to think about it that way.

Such a good question and I'm so tempted to say someone exactly like me. Of course, but you know, I think that, obviously if you're trying to think about who leads a regional reserve bank, you want to start with somebody who can have an influence on monetary policy. I mean, that's sort of the core of what we do. And there are lots of ways to have an influence, but I think you'd want to be able to think through, you know, what that vector of influence is. And it could be academic reputation. It could be outreach in the way that I do it. But there are lots of different ways to have impact. And so I think that's probably where you'd start. You want somebody to have the maturity to lead a large organization. And we've got a 3,000 person organization. Don't worry, they're not all economists. They're mostly technology people, you know, in the system. And so that's something you want to do. And then I guess I would advocate for someone who's committed to trying his best to be an insider in every community in the district. And that's what I try to do. But of course, I like what I try to do.

So maximum employment is very important, price stability is very important. You're always trying to, you know, weigh those two balances and where do you go? It's pretty easy to go well always you should bias on the employment side because the first people to get laid off are the least well-off. But I think if there's one thing that we relearned over the last five years it's just how much everybody hates inflation and everybody is at the top of the K and the bottom of the K. And I was talking earlier, Jim Davis, who's here...

Actually, I did a workshop for me three or four years ago with a bunch of construction workers in Reston. And we were asking about inflation. And the thing that came clear to me is, if you're a business, it's not that hard to balance your income and your outflows. It's called margin. And if your costs are up and your revenues are up, your margins are up. You're not that stressed about it. If your margins are down, you are. But humans don't have that mental. You have wages which are earned and well-deserved. And then there's prices which is somebody screwing you. And nobody puts those together and say, you know, I talked about real wages. Nobody else does that metric. And so you look at the consumer sentiment data. It's terrible. Why is it terrible? It's inflation and people don't like higher prices. And by the way, those least well-off by definition spend almost everything they have and so they're more subject to higher prices than people who are less well-off too. And so, you know, I don't think solving higher prices is a burden on low-income Americans. I think it's actually helpful to low-income Americans. And if we can, and the magic of low inflation is it sustains itself. You know, we had a 30 or 40 year period where it sustained itself. And so if you can do the short-term work to get it there, then you can get the long-term benefits of stable and then you can grow the economy.

Full disclosure, business school classmate of mine. So, who knows what's coming.

Well, we certainly, you know, monitor what's happening to the dollar versus other currencies. And of course, it does have an impact. You know, if the dollar's more valuable, it's cheaper to travel to Europe. If the dollar is less valuable, imports can be less expensive. So all that stuff is a fundamental part of it. We're not the primary agent when it comes to the dollar. That's really Treasury and Treasury spends time working. We absolutely, you know, spend time thinking about it and monitoring it.