What It’s Like to Be a Fed President at Jackson Hole

Episode Summary

Executive Summary: The episode begins with Bloomberg promo material, then shifts to a Jackson Hole discussion with Richmond Fed President Tom Barkin about how central bankers use the conference to study research, compare notes globally, and gauge policy. Barkin says inflation has cooled but risks remain, labor markets are loosening mainly because labor supply has risen, and rate cuts should proceed cautiously as the Fed weighs both sides of its dual mandate.

Main Topics: Jackson Hole as a policy and research forum (Priority: 5/5): Barkin explains that the symposium is an academic conference where Fed leaders review papers, debate ideas, and use research to inform real-time policy decisions. Fed thinking on inflation and labor-market risks (Priority: 5/5): Barkin argues that inflation has improved but is not fully tamed, while labor-market conditions have softened enough to justify greater attention to employment risks. Low hiring, low firing labor market (Priority: 4/5): He describes the current labor market as stable but unsustainable in the long run, with firms slowing hiring rather than laying off workers. Global comparisons among central bankers (Priority: 4/5): Barkin discusses how Jackson Hole allows policymakers to compare experiences across countries, including Germany’s unusually high savings rate and differences in safety nets and geopolitics. Monetary policy lags and rate-cut calibration (Priority: 5/5): He emphasizes that policy works with long lags and that the pace of cuts should reflect how convinced policymakers are about inflation and labor-market developments. Housing and inflation rebound risks (Priority: 4/5): Barkin warns that lower rates could reignite housing demand and that de-globalization and geopolitical risks could keep inflation above target.

Key Arguments: Jackson Hole is not just for speeches; it is an academic setting where central bankers test ideas against research and peer discussion. Barkin sees the economy as more balanced now: inflation has eased, but labor-market weakening is also more visible, so the Fed must consider both legs of its mandate. The labor market is loosening partly because labor supply has increased through higher participation and immigration, not solely because demand has collapsed. Businesses are still spending but are more selective, trading down, seeking discounts, and resisting price increases. The current 'low hiring, low firing' pattern is unlikely to last indefinitely; eventually either hiring resumes or layoffs rise. Rate cuts should be gradual unless policymakers become highly convinced that stronger action is needed; the pace depends on conviction and data confidence. Inflation risks remain because core inflation is still above target, medium-term geopolitical and de-globalization pressures could raise prices, and housing demand may surge if mortgage rates fall too far. Monetary policy lags are substantial, and today’s mortgage market transmits rate changes more slowly than in the past because adjustable-rate mortgages are far less common.

Data Points: Tom Barkin Jackson Hole attendance: 7th conference - Barkin says this is his seventh Jackson Hole symposium. Conference schedule: 3 dinners and an afternoon hike - He describes the recurring Jackson Hole format and social structure. Advance reading load: About 4 papers, each roughly 60 pages - Barkin says he received multiple long papers with appendices, charts, and regressions about two weeks ahead. U.S. savings rate: About 15% to 16% at the start of COVID; about 3.5% now - Used in comparison with Germany to discuss consumer behavior. Germany savings rate: Still about 17% - Contrasted with the U.S. decline in savings behavior. Inflation level: 2.5% over the last 12 months - Barkin says core inflation is still above the Fed’s 2% target. Inflation target: 2% - The Fed target referenced in discussing remaining inflation risk. Labor-market benchmark revision: Jobs revised from 'ridiculously high' to 'very, very high' - Barkin downplays the significance of the BLS revision while noting the labor market remains strong. Unemployment rate: Rose from 4.1% to 4.3% - He cites the latest jobs report and argues the rise reflects supply growth as well as cooling demand. Jobs added in latest report: 114,000 - Used to show the labor market is still adding jobs despite a higher unemployment rate. People added to workforce: 420,000 - Barkin says the larger labor force helped lift the unemployment rate denominator. Prime-age participation: 20-25 year highs - He cites higher participation as part of the increase in labor supply. Monetary policy lag: 12 to 18 months - Barkin says the full effect of rate changes on the economy takes this long. Adjustable-rate mortgage share: 60% in 2009 vs 8% today - He uses mortgage structure to explain why rate changes transmit more slowly now. Neutral rate estimate: 2.5% to 3.5% for the overnight rate - He says SEP estimates place the neutral rate in this range. Neutral-rate model confidence interval: 1.5% to 4.5% - He adds that model uncertainty widens the likely range. Potential unemployment-neutral rate (U-star): About 4% to 4.5% - Barkin says many think this is where unemployment would be consistent with neutrality. Mortgage-rate threshold cited by realtors: 6% or below - He says some housing participants expect demand to pick up once mortgage rates fall under this level. Example mortgage rate referenced: 2.6% in April 2021 - Barkin says some developers expect a return to that low-rate environment, which he doubts outside a recession.

Pivotal Quotes: "I'm a customer of this." — Tom Barkin: He says he attends Jackson Hole to learn from the papers and discussions, not to perform on the front row. "People aren't hiring, but they're not firing." — Tom Barkin: His shorthand description of the current labor market. "To me, the question is all conviction." — Tom Barkin: He explains that the pace of rate cuts depends on how convinced policymakers are about the economic outlook.

Implications: Listeners should expect the Fed to keep balancing softer labor data against still-above-target inflation. Barkin’s comments suggest gradual cuts are plausible, but housing, geopolitics, and sticky inflation could slow the easing path.