ECONOMY, AND AS INTEREST RATES
RISE IN A FOX BUSINESS EXCLUSIVE
, WE WELCOME FEDERAL
RESERVE BANK OF RICHMOND
PRESIDENT THOMAS BARKIN.
WELCOME, THANK YOU FOR JOINING
US.
>> HI, LIZ, GREAT TO BE WITH
YOU.
LIZ: GREAT TO HAVE YOU.
ALL RIGHT JAMIE DIMON PLAYING
WEATHERCASTER ASIDE.
WHAT SIGNS OF A COMING RECESSION
OR STORMY ECONOMIC WEATHER DO
YOU SEE RIGHT NOW?
>> WELL, AS I TALK TO
BUSINESSES, THEY ARE TALKING
ABOUT THE RISK OF RECESSION, BUT
THEN I ALWAYS ASK THE FOLLOW-UP
QUESTION, WHICH IS ARE YOU
CHANGING WHAT YOU DO?
AND RIGHT NOW WHAT I’M STILL
HEARING IS PEOPLE INVESTING,
CONSUMER SPENDING, YOU CAN’T
FIND A RECESSION IN THE DATA,
AND YOU CAN’T FIND IT IN THE
ACTIONS OF EXECUTIVES, SO I
GREW UP IN FLORIDA.
I LEARNED YOU ALWAYS PREPARE FOR
HURRICANES, BUT A LOT OF
THEM PASS AND DON’T HIT YOU.
LIZ: YOU KNOW WHAT THAT’S A GOOD
ANALOGY.
I LIKE THAT BUT AS THE BANKERS
WARN OF WHAT THEY SEE AS A REAL
PROBLEM AND THEY HAVE CLIENTS
TOO AND A LOT OF CUSTOMERS AND
BUSINESS, IT’S WITH THE OFFICIAL
START OF WHAT YOU AT THE FED ARE
DOING AND THAT OF COURSE IS
DRAWING DOWN THE FED BALANCE
SHEET, THE REDUCING OF THE
$9 TRILLION.
STARTING TODAY, EVERY MONTH
UNTIL LABOR DAY, THE FED IS
GOING TO SHRINK WHAT THE BALANCE
SHEET BY $47.5 BILLION, THAT
JUMPS UP TO ABOUT 95 BILLION,
STARTING I BELIEVE AFTER LABOR
DAY.
YOU KNOW, WHAT ROLE DOES THE
BALANCE SHEET HAVE WHEN IT
COMES TO BRINGING INTEREST RATES
TO THE POINT THAT YOU GUYS NEED
TO SEE THEM AT?
>> WELL, I DO THINK IT’S TIME
BOTH ON RATES AND ON THE BALANCE
SHEET TO NORMALIZE WHERE WE ARE.
I THINK WITH INFLATION THIS
ELEVATED AND THE ECONOMY STILL
THIS STRONG, IT JUST MAKES
PERFECT SENSE TO DO THAT.
I’LL SAY THE REDUCTION OF THE
BALANCE SHEET IS THE KIND OF
THING THAT’S RELATIVELY NEW IN
OUR EXPERIENCE AND STILL IN LOTS
OF PLACES BUT IT’S CLEAR TO ME
AT LEAST THAT IT DOES A LITTLE
BIT MORE ON TOP OF THE INTEREST
RATES TO TIGHTEN RATES AND
THEREFORE, HELP BRING INFLATION
DOWN.
LIZ: SO, YOU COULDN’T SAY OR
CAN YOU SAY BY THE END OF THE
YEAR, PERHAPS, DOES THAT
EQUAL MAYBE 50 BASIS POINTS
WHICH WOULD MEAN ONE LESS
FEDERAL RESERVE TIGHTENING?
>> THERE’S A LOT OF ESTIMATES
OF THIS I HAVE TO SAY.
IT’S HARD TO FIND ONE THAT’S
MORE CREDIBLE THAN ANOTHER.
I THINK JAY USED IN HIS PRESS
CONFERENCE MAYBE 25 BASIS POINTS
A YEAR AS A MARKER FOR THAT BUT
I THINK THE RANGE OF ESTIMATES
IS PRETTY BROAD.
LIZ: THIS IS TRUE.
EVERYBODY HAS THEIR OWN
CALCULATIONS.
YOU KNOW THE FED’S LONGSTANDING
GOAL HAS BEEN GETTING INTEREST
RATES BACK TO WHAT JAY POWELL
HAS SAID IS A NEUTRAL POSITION
OF ABOUT 2%.
MR. BARKIN, WHAT’S YOUR NEUTRAL
POSITION?
>> WELL, NEUTRAL IS ANOTHER
NUMBER THAT IF YOU LOOK AT OUR
ESTIMATES OF THE SEP, YOU’LL
SEE A RANGE BETWEEN TWO AND
THREE.
IF YOU GO INTO THE LITERATURE
WHAT YOU’LL FIND IS THE
CONFIDENCE INTERVAL OF ABOUT
150 BASIS POINTS, SO I’M NOT
SURE THAT I FIND NEUTRAL TO BE,
I LOOK AT REAL RATES ON A
FORWARD-LOOKING BASIS.
YOU COULD ARGUE THAT FROM FIVE
YEARS UP, REAL RATES ARE BACK TO
POSITIVE ON A FORWARD-LOOKING
BASIS AND OBVIOUSLY, WE STILL
GOT ROOM TO GO ON SHORTER RATES.
LIZ: LET ME PUT IT THIS WAY THEN
, DO YOU THINK THE COMMITTEE
WILL HAVE TO GO ABOVE 2% OR
WHAT JAY POWELL SAYS IS NEUTRAL
TO DOUSE INFLATION FIRES?
>> WE’LL SEE.
JAY LAID OUT A PATH FOR THE NEXT
COUPLE MEETINGS I’M PERFECTLY
COMFORTABLE WITH AND WHEN WE GET
TO THE FALL, I THINK WE’RE
GOING TO HAVE A LOT MORE
INFORMATION ON THE STRENGTH OF
THE ECONOMY, WE’LL HAVE A LOT
MORE INFORMATION ON THE PACE OF
INFLATION.
THOSE ARE THE TWO THINGS I’M
PAYING THE MOST ATTENTION TO,
AND THE STRONGER INFLATION AND
THE STRONGER THE ECONOMY, THE
MORE THE CASE TO DO MORE,
AND TO THE EXTENT THAT THE TWO
ARE WEAKER, THE BETTER THE CASES
TO DO LESS.
LIZ: I’M GLAD YOU JUST BROUGHT
UP PAYING ATTENTION TO CERTAIN
THINGS.
THE FED HAS ALWAYS SAID, WE
DON’T PAY ATTENTION TO THE STOCK
MARKET.
THE STOCK MARKET IS SEPARATE
FROM THE ECONOMY, AND IT IS,
IT’S ALMOST LIKE PEOPLE SAY THAT
IT’S SIX MONTHS AHEAD, SOMETIMES
OF THE ECONOMY, BUT YOU KNOW,
MAY 20, THE S&P CAME WITHIN A
CAT’S WHISKER OF DUMPING INTO
BEAR TERRITORY SO YOU’VE GOT THE
BANKERS, YOU KNOW, SOUNDING
THE ALARM.
YOU’VE GOT THE STOCK MARKET
LOOKING VERY CLOSE TO BEAR
TERRITORY AT ONE POINT NOW IT’S
DOWN 14% SO STILL IN CORRECTION.
IT’S EASY TO SAY THAT, BUT HOW
MUCH DOES THAT WEIGH ON THERE,
BECAUSE AS WE STARTED TO SEE A
LOT OF VOLATILITY LATELY, YOU
HAVE RAPHAEL BOSTICK OF THE
ATLANTA FED SAYING LET’S DO
50 BASIS POINTS JUNE AND JULY
AND THEN PAUSE BY SEPTEMBER, AND
THEN HE KEPT SAYING WE HAVE TO
BE SURE WE’RE NOT WRECKLESS.
I’M NOT ASKING TO COMMENT ON A
COLLEAGUE’S COMMENTS BUT I AM
ASKING WHETHER SOME LOOK AT THE
VOLATILITY AND GET A LITTLE WISH
Y WASHY WHEN IT COMES TO
CONTINUING ON THE PATH OF RATE
HIKES.
>> WELL WHEN I I SAY I’M
LOOKING AT DEMAND I’M LOOKING AT
THE QUESTION OF ARE CONSUMERS
PULLING BACK FROM THE ECONOMY?
CONSUMER SPENDING IS TWO-THIRDS
OF THE ECONOMY.
CONSUMERS MIGHT PULLBACK BECAUSE
SENTIMENTS DOWN THAT’S SOMETHING
WE DEFINITELY SEE.
CONSUMERS MIGHT PULLBACK BECAUSE
MARKETS CRATER, IF THAT WERE TO
HAPPEN THAT’S SOMETHING BUT I’M
REALLY LOOKING LESS AT THE
DRIVER AND MORE AT THE RESULT,
WHICH IS ARE CONSUMERS PULLING
BACK FROM THE ECONOMY.
IF THEY WERE THAT’S THE KIND OF
THING I’D WANT TO PAY ATTENTION
TO.
LIZ: AREN’T THEY KIND OF
STARTING TO DO THAT?
WE HEARD FROM TARGET, WE HEARD
FROM WALMART, SNAP WHICH IS A
LITTLE BIT DIFFERENT CONSIDERING
THAT’S SORT OF A TECHNOLOGY TYPE
OF COMPANY BUT THEY ALL SAID
THAT THE SITUATION CHANGED
MARKEDLY BENEATH THEIR FEET, SO
SOMEBODY IS SEEING SOMETHING,
ARE THEY NOT?
>> I’M STILL HEARING VERY
STRONG CONSUMER DEMAND AT THE
HIGH END, AND AT THE LOWER END
WHAT I’M HEARING IS THE START OF
THE KIND OF TRADEDOWN YOU NORMAL
LY SEE WHEN THINGS GET A
LITTLE TIGHTER.
IF YOU LOOK AT THE PCE NUMBERS
FROM A WEEK AGO THEY WERE STILL
EXTREMELY STRONG, RETAIL SALES
STILL UP HEALTHY SO NAME NOT SEE
THAT MAYBE CONCERN ABOUT
CONSUMER SPENDING AND YOU STILL
HAVE A SIGNIFICANT AMOUNT OF
EXCESS SAVINGS AND INCREASED NET
WORTH SINCE BEFOREHAND, SO THE
DYE DYNAMICS WOULD SUPPORT
SPENDING.
LIZ: WERE YOU SURPRISED BECAUSE
MANY PEOPLE WERE DEPENDING ON
WHERE YOU STAND ON THIS THAT
JANET YELLEN AND THE TREASURY
SECRETARY SAID ON CNN YESTERDAY
THAT SHE GOT IT WRONG ON
INFLATION.
SHE BASICALLY ADMITTED THAT SHE
MISSED AND HERE IS THE QUOTE.
SHE MISSED LARGE SHOCKS TO THE
ECONOMY AND THEY WOULD BOOST
ENERGY AND FOOD PRICES AND SHE
DIDN’T "FULLY UNDERSTAND" SUPPLY
BOTTLENECKS THAT HAVE EFFECTED
OUR ECONOMY BADLY.
>> WELL ONE THING I TRY TO DO
ON A CONSTANT BASIS IS GO BACK
TO WHAT I USED TO THINK AND ASK
MYSELF WHETHER I WAS RIGHT OR
WRONG.
I REMEMBER EXTREMELY WELL THE
TIMES I WAS RIGHT AND
NOT THAT WELL THE TIMES I WAS
WRONG.
LIZ: [LAUGHTER]
SELECTIVE MEMORY.
>> YES IT’S VERY HARD TO
PREDICT THE FUTURE.
I CERTAINLY DIDN’T SEE THE
UKRAINIAN SITUATION
COMING AND WHAT THAT’S DONE TO
FOOD AND OIL PRICES.
LIKE MANY PEOPLE I SAW THE
NOTION THAT WORKERS WOULD
COME BACK TO THE ECONOMY FASTER
AS HIGHLY-LIKELY AND IT TURNED
OUT NOT TO BE THAT SO I THINK
IT’S AN EXTREMELY CONSTRUCTIVE
PROCESS TO TAKE A LOOK BACK AND
REFLECT ON WHAT YOU LEARNED OUT
OF IT AND I THINK THAT’S HEALTHY
FOR ANYBODY AND I CERTAINLY TRY
TO DO THAT MYSELF.
LIZ: WELL TO BE FAIR, AND TO BE
HONEST, WELL-BEFORE THE
UKRAINIAN SITUATION, WE
STARTED TO SEE INFLATION,
WHETHER IT BE FROM THE SUPPLY
CHAIN SNAFOO THAT WERE TRIGGERED
BY THE LOCKDOWNS CERTAINLY CHINA
DIDN’T HELP, SO I’M NOT SURE
THAT RESONATES WITH THE AMERICAN
PUBLIC IF THEY DON’T SEE THAT
THEY ARE PAYING MORE, THEY WERE
PAYING MORE A YEAR AGO JANUARY,
IT REALLY STARTED AND THEREFORE
THAT LEADS ME TO WONDER, CAN THE
FED HOLD ON TO ITS RESOLVE
CONTINUE TO HIKE RATES TO BRING
THOSE PRICES DOWN EVEN AS THOSE
SAME PEOPLE WHO ARE
CRYING ABOUT HIGH PRICES ARE
ALSO VERY UPSET ABOUT THE
PROBLEM WITH THE SLIGHTLY-
SLOWING ECONOMY.
>> WELL, ONE THING I HEAR AS I
GO OUT CONSTANTLY IS WHETHER IT
BE FROM BUSINESSES OR CONSUMERS
AS WITH A BUNCH OF CONSTRUCTION
WORKERS TWO WEEKS AGO, IS PEOPLE
REALLY DO NOT LIKE INFLATION,
THEY DON’T LIKE HIGHER GAS
PRICES, HIGHER FOOD PRICES AND
PEOPLE WANT US TO DO SOMETHING
ABOUT INFLATION.
I THINK THERE IS A DISAGREEMENT
ON THAT AND SO WE’RE DOING WHAT
WE HAVE TO DO ON INFLATION AND I
THINK TO THE EXTENT OUR TOOLS
WORK WHICH I’M CONVINCED THEY DO
, WE WILL HAVE THE RIGHT
IMPACT ON INFLATION AND THAT’S
WHAT THE AMERICAN PEOPLE WANT.
LIZ: THE MARKETS OF COURSE ARE
PRICING IN A HALF POINT HIKE FOR
JUNE, AND JULY.
THAT’S PRETTY MUCH EXPECTED.
WHAT SCENARIO, MR. BARKIN DO YOU
SEE THAT WOULD PUSH THAT TO A 75
BASIS POINT HIKE AND IS THAT A
POSSIBILITY, AT LEAST IN THE
NEXT TWO MEETINGS?
>> WELL, I’VE SAID PUBLICLY
BEFORE, I NEVER TAKE ANYTHING,
PUT ANYTHING ON THE TABLE OR
TAKE ANYTHING OFF THE TABLE, SO
I GUESS ANYTHING IS POSSIBLE,
THAT SAID, YOU HAVE TO JUST
BELIEVE TO CHANGE YOUR PACE, YOU
HAVE TO BELIEVE THAT SOMETHING
FUNDAMENTAL CHANGES IN YOUR
ASSUMPTIONS AND IN THIS CASE I
THINK IT WOULD HAVE TO BE AROUND
INFLATION EXPECTATIONS.
LIZ: ALL RIGHT SO WE’RE WATCHING
INFLATION NUMBERS, RIGHT
ALONGSIDE YOU WITH THE FED AND