Richmond Fed President Tom Barkin in South Carolina on Feb. 3, 2026

Thanks William for that nice introduction. I think I'm here just to sort of set the stage. I'm not going to talk a ton about early development. I will talk about the national economy and what we see going on, and there's time for questions if you guys have any at the end. It's great to be in a place like South Carolina that's growing so nicely. That's not true in every part of my district. And the thoughts I give are going to be mine and not anybody else at the Fed's. So for those who aren't familiar with what the Federal Reserve does, we have a dual mandate from Congress: stable prices and maximum employment. And what we do is if either part of the mandate, prices or employment, moves too far away from its target, our job is to guide the economy back home. And you'll remember that's what happened during the pandemic. Inflation spiked and that helped us remember or relearn a lesson that we'd all forgotten from the 70s, which is just how much we hate inflation. Inflation feels unfair. Inflation creates uncertainty. And frankly, inflation's just exhausting. It's exhausting to have to negotiate with suppliers or with customers or shop around for better prices.

So, as I hope you would hope, the FOMC did the job that Congress has asked us to do. We moved to bring inflation under control. We raised the federal funds rate over five percentage points relatively rapidly over 17 months. And the steepness of this hiking cycle made a lot of people worry that the cost of addressing high inflation would be a downturn in the economy. You may have heard it called the most predicted recession in history. But instead, inflation started falling back toward our 2% target. While the economy and the labor market seemed impressively resilient, we were headed back home. Then of course came last year. The pace of change was overwhelming. Think geopolitical tensions in the Ukraine, in Gaza, in Venezuela, and Iran. Think the transformational possibility of artificial intelligence. Think government policy changes like tariffs, immigration, tax bill, deregulation, spending cuts, and the government shutdown.

It was hard to know how all these shifts would net out for demand, for employment, and for inflation. And I compared it last year a lot to driving in a dense fog. You didn't want to put your foot on the gas because you didn't know what lay around the next turn. You didn't want to put your foot on the brake because you didn't want to know what accident that would cause. So, you pulled over and you put on your hazards. And that's what most businesses did last year. They spent the year on the side of the road, not cutting back, but not leaning into more investment. Not hiring, but not firing. Invisibility only worsened further when everybody lost access to government data during last fall's extended shutdown.

But as we move into 2026, it feels to me like the fog is starting to lift. Or maybe our eyes are just starting to adjust. The road ahead is coming back into focus. And once again, we're seeing an economy that remains remarkably resilient. You can see it in the recent data. Third quarter GDP came in at a very strong 4.4%. Consumer spending, which makes up nearly 70% of GDP, remained healthy through the fall. The unemployment rate ticked down in December, coming in at 4%. And just for context, the unemployment rate has only been that low three times in our working lifetimes: in the late 90s, in the 2006-2007 period, and in the late 2010s. Unemployment claims remain stable as well.

Why have we stayed this resilient? I think it's due to strong underlying dynamics. Consumers have jobs, as I've said. With inflation down, real wages are now increasing. Asset values keep growing. Corporate earnings remain strong. In those circumstances, it's hard to imagine consumers and businesses moving to the sidelines. In parallel, inflation has come back from its peak and now sits at 2.8%. Near-term expectations for inflation have also fallen, suggesting more progress to come. And I hear the same reinforcing messages when I talk to businesses. I've talked personally to almost 75 companies since the start of the year. They tell me their demand is fine. Their customers have learned to live with higher uncertainty. Most firms I talk to are still not doing layoffs at scale. Why would they when demand and margins remain solid? Many of those who were determined to pass on tariffs last spring now acknowledge their pricing power has been significantly constrained by pushback by consumers. And that's good for inflation.

And the recent rise in productivity also suggests these businesses can bear higher input costs without facing as much pressure to increase prices. And the economy is still going to get meaningful additional support from government policy. There's significant stimulus from tax refunds, reduced withholding, lower gas prices, not to mention the impact of the Fed's cuts over the last year and a half. Deregulatory efforts should support growth, too. At the same time, the focus on slowing net migration suppresses the level of job growth that's needed to keep the unemployment rate steady. The renewed bipartisan emphasis on affordability could also be disinflationary in the coming months.

So, we can better see the road ahead, but if I want to echo all of our family road trips, are we there yet? Not quite. We still have some distance to travel before we get home. Why do I say that? Well, weather conditions could change. The impact of these announced policy changes still remains uncertain. The policy mix itself is volatile as we've seen over the last month with geopolitics and trade policy. Markets can be volatile too. We've seen that recently. The pace and impact of new technologies like AI is still to be seen. Amidst all this uncertainty, consumers are uneasy. Consumer sentiment measures are near historic lows. And as you know, the government has shut down yet again.

And while we've made a lot of progress on inflation, it still remains above our target. And that's been the case for five years now. It would be easy to blame tariffs or blame measurement lags. But I take this sustained miss seriously. And that's because I believe that today's inflation numbers, regardless of the why, significantly influence tomorrow's inflation. Let me paint a picture for what that means in practice. In boardrooms around the country, sales and finance teams are debating and they're debating how aggressively to increase prices, for example, in the context of tariff-driven input costs. If I can stereotype, sales doesn't want to pass through those costs because they worry about lost volume. Finance doesn't want to eat those costs. They worry about reduced margins. Today's inflation numbers become a key fact as sales and finance are debating. It helps finance raise prices when inflation is high. It helps sales price cautiously when it's not. With inflation still above our target, I imagine some finance teams have done pretty well lately, at least based on the increases I've seen in my streaming services and my homeowners insurance.

Finally, the road home is a narrow one. The strength of demand seems focused in two places: the AI ecosystem and those who serve wealthy customers. Notably, those two segments are connected. Easing in the AI space could hit business investment and the stock market, which in turn could hit consumption by the wealthy should they see their net worth decline. Job growth has been narrow as well. A fact you might not know is that 97% of net private sector job creation last year was in one sector: healthcare and social assistance. What happens if healthcare pulls back in the context of elevated uncertainty about their reimbursement models? What sectors would pick up the hiring slack? In my conversations, it's still hard to find businesses near the point of leaning in on hiring.

Now, low hiring hasn't been translating into rising unemployment because the growth in labor supply has shrunk at about the same pace as labor demand. But slow job growth isn't a comfortable place to be.

Let me divert for a second and talk about the shrinking growth in labor supply. When I zoom out and think about the US economy in a longer term horizon, labor supply is one of my top concerns. Lower net migration means we will depend more on native-born workers and as you know our population is aging. Just to be clear I'm not, but many of you are. The fertility rate is declining and thus barring major changes the lever that's going to matter the most is participation in the labor force. And so you have to ask the question what would it take to engage a larger share of our population in the workforce. Now, there are many strategies to bring those on the sidelines into the workforce. Removing non-work barriers like child care and transportation, tackling skill and geographic mismatches, ensuring tax and benefits programs promote work. But if you're playing the long game, which those of you in this room are, you start earlier. You start building the foundation from a young age, not only for hard skills, but for soft skills, which are critical to success at later stages of the education pipeline and in the workforce. These soft skills will arguably only become more critical in the AI era. So, I appreciate all that everybody here is doing to ensure the economy works for an ever broader set of our workforce.

So, what does all this mean for monetary policy? As I said earlier, we raised rates three years ago to bring inflation under control. As the inflation rate has fallen, we've been bringing rates back down toward neutral levels. We've reduced the Fed funds rate 175 basis points over the last year and a half. I think of these cuts as having taken out some insurance to support the labor market as we work to complete the last mile to bring inflation back to target. So far so good, but we know things change and as they do, we'll respond as appropriate. And with that, I am open if people have questions or comments, corrections if they see the economy in a different way. Very interested in any thoughts or questions.

Okay. Oh, there's one. That's too bad. I thought I was going to get out scot-free.

Well, so if you lower interest rates, you know, most dramatically what you do is you make things less expensive in interest-sensitive sectors. You promote business in interest-sensitive sectors. So residential housing would be a good example of an interest-sensitive sector. Automobiles is an interest-sensitive sector. And so people who pay overnight interest they feel like they've got more money in their pocket and therefore they spend more. That's the basic benefit of lower interest rates. The risk of lower interest rates is what that might do to inflation, inflation expectations. And so we've got a two-sided mandate. You're always trying to balance those. And I like to say our jobs are pretty easy most of the time. I mean, when inflation is high and unemployment's low, you want to raise rates because you want to do something about inflation. That's what we saw three years ago. When inflation's low and unemployment's high, you want to lower rates. That's what happened during the pandemic because you want to stimulate the economy. And when inflation's low and unemployment's low, you want to go on TV and give a lot of speeches because you're doing your job very well. But we're in a more difficult situation now where inflation's still a little bit high. Not hugely high, but a little bit high. You know that. I'd mentioned streaming services, a great example. And unemployment's been ticking up. And so now you're trying to balance both sides of the mandate. And it is kind of a balancing act. And that's how I think about it.

Well, so as you might, I get this question a lot. I think South Carolina is really on the map. It's on the map for population growth. The numbers just came out in the last week or two that shows it's the number one growth state in the country. I think there's a lot of attractiveness to the South Carolina story, but to me it has to do with the virtuous loop between employment and job opportunities. I think the state did a brilliant job, you know, going back 40 years in terms of attracting businesses to the state. The state's done a brilliant job going back 40 years in terms of attracting employees to the state, workers to the state. And that's worked in a very nice synergistic way. I like to say that you know if you go back to the 90s we weren't short workers, we were short jobs. We had a lot of workers. That was baby boomers fully working. People living longer and working longer. Alternatives like offshoring meant people didn't need as many workers. And so everything was about jobs. I think today it's much more about workers. And it goes back to what I said at the end. Net migration isn't going in a way that's promoting workforce. Fertility isn't going in a way that's promoting workforce. And retirements aren't going in a way that's promoting workforce. And so if you're a state that can attract and keep workers, then you're going to attract jobs. And I think it's kind of flipped now. And one of the things I like doing is just driving around looking at housing opportunities. If you drive from here to Sumter and you go down the road, you'll see new housing developments all over the place. If you drive in exurban Greenville or north of Charleston or, you know, Myrtle Beach where we've got a place, you're going to see housing being built everywhere. And in today's world, workers and potential workers want affordable housing. And I think, you know, South Carolina's just mastered the art of attracting workers, attracting jobs, attracting workers, attracting jobs. And importantly, I think housing is a big element of that.

Well, so the energy thing is going to be very interesting because you know there's one of these there's a bunch of charts out there that show over the next five or 10 or 15 years the world is going to need this much energy because it's going to have this much AI and other data center needs. Of course you know that no one knows whether the number is this or five times this or half this and no one knows how energy efficient AI is going to become five or 10 or 20 years from now. And so we have this very complicated issue for states which is if you want to attract business you've got to attract, you know, the supporting structures and the elements that build AI. And so you've got to invest in your technology backbone. I mean your energy backbone. On the other hand, the only thing you know for sure is the forecasts of AI energy needs are going to be wrong. You just don't know whether they're going to be too high or too low. And so it takes a long time to build it. So, you know, it's going to be I mean people are going to build a lot of energy infrastructure and they should and the world needs a lot more energy. But they're going to miss and again no one knows whether you're going to miss too little or miss too much. It's going to be a very complicated situation to play out.

Yeah. So there I'll separate into two questions. First the debt and second the dollar. So just some numbers. The US debt as a percent of GDP at the end of World War II was 106%. Over the next 50 years our forefathers through some amount of prudence and an awful lot of growth, you know, took that down to about 37%. That's where it was in 2007. Today it's back up to about 100%. And we're running very big deficits and trees don't grow to the sky. And so you know there will be a point at which we have too much debt for GDP. The way that evidences itself is interest rates, long interest rates spike, creditors decide they don't want the debt or the US or the country doesn't have the ability to finance spending that it would otherwise want to do whether that be defense or stimulus during a downturn or the like. You would have seen that in Europe actually didn't have the financial capability to do it. But you know the path is not the right path. The challenge is you just don't know when that path is going to hit the wrong point. I mean we're at 100%. Italy is at like 180. I don't aspire to be Italy but there Japan's over 200. I don't aspire to be Japan. But there's just a point and there's a moment out there where the creditors don't like the credit and that's what you have to worry about. And we just don't know if that's going to be a year from now or 50 years from now. But we do know the path is not sustainable. Now, the Today Show had a great episode during the whole Tea Party thing in the early 2010s where they had flashcards and they had eight different people around a table, one from every interest group. They had a young person, a retiree, they had a union member and a business person. They had a small business owner. They had a socialist and a Tea Party person. They had everybody there. And the eight of them balanced the budget in 20 minutes on the show with the flashcards. So, I'm not saying it's impossible. I just doesn't feel like there's a lot of commitment to do it now. And so, it has to people have to want to do it. And so far, that doesn't seem to have been the case.

On the dollar. The dollar is the reserve currency of the world. That gives us benefits, lower interest rates. We've earned it. We've earned it through having the biggest, most liquid, most legally enforceable set of instruments. The strength of our economy, low inflation, rule of law. But just because we've earned it doesn't mean we're entitled to it forever. And the rest of the world isn't happy about it. I mean I've been to speeches by policy makers in other countries, countries that are allies of ours and they don't like the fact that we can weaponize being the dollar and using sanctions for example. But the issue is who are you going to compete with? I mean, if you were a country that wanted to put your money somewhere, what competes with the 10-year US Treasury? There's not much. And so, you know, we're not entitled to it. We've earned it, but we've got to keep earning it. And then you got to be, you know, attentive to potential competitors who develop markets that are sizable and liquid and low inflation and rule of law. And like I said, so far that hasn't happened. But you got to be attentive to it.