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

Episode Date: August 26, 2024

This year’s Economic Symposium in Jackson Hole, Wyoming marked a big change for US monetary policy, with Federal Reserve Chairman Jerome Powell telegraphing the first rate cuts in potentially two years. But what’s it actually like to be a policymaker at one of the most famous economics conferences in the world? And what do central bankers do when they all get together to talk policy? In this episode, we catch up with Richmond Fed President Tom Barkin, who describes what it’s like to be at Jackson Hole, what’s discussed and how the annual agenda put together by the Kansas City Fed comes together. We also talk about Powell’s speech and how Barkin is viewing the labor market right now. Powell’s Pivot Leaves Traders Debating Size, Path of Rate Cuts Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at  bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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Hello and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, we are here at Jackson Hole. We made it. I love it here. So this is the annual economic symposium held by the Kansas City Fed. And it's sort of a gathering of central bankers and policymakers.

And the idea is that, A, it's a chance for them to talk about the sort of pressing issues facing the global economy and maybe their individual economies. It's a chance to go over academic literature and talk about ideas. It's also a chance potentially to guide monetary policy, at least for the Fed. Right. So this is what people generally know the Fed chair gives a speech. But there's also a bunch of, you know, like in theory, and I suppose in practice, but in theory, it helps policymakers, central bankers around the world make better decisions in real time if they're up on the theories or if they're up on what's happening in academic work and what research is being done in economics. And so, for example, the theme of this year is monetary policy transmission, which is another way of saying how does monetary policy actually affect the real economy. It's kind of a big topic. Yeah. But there are a lot of questions about that. And, you know, how the Fed is, say, going to proceed with the rate cut cycle? Well, you would want to know what rate cuts. actually do before, you know, that might guide you. So it makes sense to sort of convene everyone

here, talk about the latest research in what monetary policy actually does, and then maybe that can make for better short-term decisions. Absolutely. And it sort of begs the question, I guess, what is it like to be a policymaker at Jackson Hole? So you and I are coming at it from an outsider's perspective, obviously. And I should just say, for people who don't know, there's only a handful of journalists basically who are allowed in the room where all these discussions happen and where Powell's speech is actually given. Everyone else is sort of milling around outside learning by osmosis what's being discussed in the room. And so I'm really curious what Jackson Hole is like for an actual central banker. Totally. I have to say like when I go to conferences,

you know, I'm like everyone else. I just want to hang out in the lobby and chat with people. I don't actually like, well, you know, I hear panels and stuff. So I sort of like that from me and you perspective, we don't have to feel guilty about not going into the panels and like listening because we aren't even given the option in the first place. So we can just hang out in the lobby and the lodge and not feel like we're shirking our job. Yeah, we physically can't try to gather information like normal journalists because the Secret Service will stop us from entering the special room. That's right. Okay. Well, I am very happy to say that we do in fact have the perfect guest, someone who's been on the podcast before. We are going to be speaking with

the president of the Richmond Fed, Mr. Tom Barkin, and he is going to tell us what it is like to actually be here at Jackson Hole as a Fed member. And it's great because for people who remember the last time we talked to Tom Barkin, we went on a trip with him to North Carolina. And so it's essentially the two sides of being a regional Fed president, the job, right? So one part of the job is to understand what's going on in your district. And Tom does that in various ways. But then the other part is essentially, we're not in D.C., but the quote, D.C. part of the job, where then you, like, take the information that you learn and talk to other people and, you know, stay up to date on the latest literature and all this. And so we're going to learn what it is that

they really do here. Okay. Let's do it. Tom, welcome back to the show. It's great to see you guys again. It's nice to see you in as lovely a setting as Jackson Hole, Wyoming. Although Monary was great, too. Oh, yeah. Yes, absolutely. I'm thrilled just to be out of New York City in general. But, okay, let's talk about Jackson Hole. How many of these have you actually been to at this point? That is my seventh. Oh, wow. Yes. And in that time period, have they always followed a similar format? Yes, the format has always been the same other than, I say I've been to seven during COVID. I know we canceled. one in 2020. But even that one kept the same format. It's an academic conference. And so the chair will give a speech. They give a couple of papers. Then they wake up the next morning. They give a couple

papers. Another central banker give a speech and then you move on. I know that like someone gives a paper that they've worked on and then there's some official discussants who may have some respondents. And then people ask questions. What do you do? Do you pipe in with any any questions? Are you, so do you challenge them and put them on the spot? There's a lot of people out here who try to do that. I've got a different agenda. They quite intentionally do these around monetary policy topics. So today one of the papers was about the relation between inflation and unemployment and whether that's changed.

And I'm looking for good ideas for policy. So I'm looking for people to put something on the table that I can say, hey, now that's an interesting idea that supports something that I've been thinking or that's a different way of looking at something. So I'm a customer of this. And there's a lot of people who, it's just like college. There's a lot of people who sit in the front row. that's probably not me. The other thing I wanted to ask is the materials for the actual conference, so we don't see them until they're sort of like drip fed to the public.

Do you get them in advance and you can read them and think about them before you actually arrive? Absolutely. I got them about two weeks ago, you know, probably four 60-page papers, appendices, charts, regressions, all that stuff. I read through them. And my team also reads through them. And we actually do a whole briefing session the week before where my economists will say,

I really like this paper. Here's something that somebody needs to ask this question because I think about it differently. And so I'm sort of zoned into the papers before they come. Academic conferences have this other tradition, though, the discussant. And so someone will give a paper. And then somebody else who's done research in the exact same field will give their view on the exact same topic. It's almost never the same. So you do get a little bit of this back and forth debate, which is very helpful if you're

trying to think as I do about how to make sense of policy. This is a question that many of our listeners have, so I'm relaying it to you. You know, there's the bar here, there's a restaurant, there's hiking. What do you do when you're not in the room? And when you're, say, on a hike with some other central banker or maybe someone, you know, maybe from a different country or are you talking about economics or are you talking about, wow, did you see that bald eagle out there? Did you catch that, you know, see the moon last night? Like, what do you guys talk about? So, as I said, the agenda is pretty set.

There'll be three dinners. Yeah. And then in the afternoons, there's a hike. And so after the dinner, sometimes you go to the bar and sometimes you don't. There's lots of opportunities to make new relationships and connections. There are central bankers from around the world here. And when I'm talking to a central banker from Argentina, I'm talking about the Argentinian economy because I'm interested in it.

And, you know, we don't have the same kind of backgrounds and our kids don't go to school together. So that's kind of business. Now, when I talk to people that I already know, then we could talk about, you know, most anything, tell stories about whatever. But I think these other central banks, I mean, it is very interesting to understand how the U.S. is seen from other windows and how those economies are. I talked to someone from Germany yesterday. This is going to make me interested, but not yours. Our savings rate went up at the beginning of COVID to about 15 or 16%. Same thing happened in Germany.

Our savings rate has come down to about three and a half. There's it still at 17. Really? So why are German consumers not spending the way American consumers? That's an interesting topic and it's something we spent some time on. It's the kind of example of the kind of thing. Well, so the thing that really makes it crazy interesting is there's a whole social safety debt in Europe that doesn't exist here. And so most the time you think people are saving for retirement.

They're saving for a rainy day or they're saving because they're worried about losing their job. Well, in Germany, they kept everyone's job during the pandemic and you've got a pension. So why are they saving? And I think the best explanation I've gotten, it's actually something on my list to study going forward is there's just a lot more precautionary feeling about the situation in Europe, the risk versus the Ukraine and what's happening over there. And it's just a culture that maybe just gotten a lot more cautious due to geopolitics, if nothing else. That does sound really interesting. By and large, I mean, obviously the situation in the Argentina economy is radically different than it is here in the U.S. Germany is probably still, you know, all things considered similar cyclically to the U.S. Does it feel like by and large, at least among like developed country, central bankers, that there is a strong set of common mysteries perhaps? Or are they really like everyone's sort of seeing different things in their own country? I mean, I'm sure it's a mix of both.

But how much of a global factor is there? Much more in common than different. The whole practice of central banking has been, I'd say, globalized over the years. And central bankers really do think about inflation targeting, for example, same ways. And there are banks like New Zealand and Australia that back in 2000 or even before that set inflation targets before the rest of us. And we learn from them. And so there's a lot of learning. There's a lot of discussion.

I think there's very much a common framework. Now, the economies are very different. I mean, the U.S. economy has come through this unbelievably well. The European economies have not. And so we have a much stronger economy. So much of our economy is services, so much as supply. to ourselves. A lot of this de-globalization has felt much more on the European side. The challenges

in China right now are felt much more on the European side. And then emerging market countries, they really just are worried we're going to increase rates further and they're going to end up offside. And so they're very dependent on our strength of our dollar or the weakness of our dollar. This is Tom Keene, inviting you to join us for the Bloomberg Surveillance podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you completely plate coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophress.

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the process of putting together the statements for the FOMC meetings. And we're here at Jackson, whole every year the Fed chair gives a speech. What's the process like for putting together that particular speech? Well, it's his speech. So I'll let him talk about exactly how he does the process. But I've talked to him before and I know he thinks about it for months. I mean, this is a big speech on a global stage. It's gotten a certain amount of cachet to it. And he thinks hard about, you know, what he wants to say and how he wants to say it. And he writes the speech. And, you know, he'll consult with who he wants to when he does that. But it's, it's his speech and it's his, his conversation. Were you surprised? So, you know, the markets were a bit surprised by the

forcefulness with which Powell really just focused on cutting off left-tail outcomes for the labor market. And it's clear that the big shift has happened. And he very explicitly said, we do not have any aspirations to see a softer labor market. And in some sense, it's softer than it is in 2019. Were you surprised? I don't know when you first read this speech, probably before us. Were you surprised? He gets to write his own speech and he says what he wants to that. Clearly, people were taken by surprise. Otherwise, we wouldn't have seen the big market.

I think the economy, since we were together three or four months ago, the economy's moved in a, in a very different way. First of all, on the inflation side, I might have even said four or five months ago, I was looking for inflation to sustain and broaden. So it's sustained. We've got very low readings for four months in a row. And it's now across the basket, whereas six months ago, eight months ago, it was really just in goods.

And so the concern about inflation, reacconcings, accelerating has definitely come down significantly. At the same time, the labor market stats have also softened. And so, you know, the phrase I've been using is people aren't hiring, but they're not firing. And that's just not a high likely sustainable outcome. Either demand will continue and people will start hiring again or you'll start to see layoffs. And so I think there's more concern on the labor market and less concern on inflation relatively, and we've got a dual mandate. So I think if you look at the minutes that came out a week ago, they'll give you a pretty good. of where the committee was. And I think, as always, Jay speaks thoughtfully and responsibly for the

committee. So one of the reasons we like talking to you is because you go out and you speak to companies about what they're actually doing in an attempt to figure out what that means for the economy. What are you hearing from companies right now versus, say, April when we last spoke to you? Was it April? Yeah, I think so. So consumers, you hear a lot of talk about people saying that consumers weak and people are running out of savings. That's not what I'm hearing. What I'm hearing is consumers are still spending, but they're choosing. And the way I think about it is they now have the time when they go into a store and they see something that's at a price they don't like to say, I think I'm going to do something else. And so if you look at Walmart's results, they would talk about

people trading down. If you look at targets results, they talked about the kind of reaction they're getting to lower prices, McDonald's results in the $5 value meal. I've talked to hotel chains that every room is booked, but they can't raise price at all because the second they raise price, people just won't buy it and won't book it. I talked to a fast food leader who's rolling out software actually to encourage their franchisees not to raise prices anymore. That's a first. Counter trend. So I really think what's going on is prices are up. People are aware of it. And people are reacting. Two years ago, you know, you were just outspending and you just wanted it or you needed those Taylor Swift tickets.

You always like it when I bring Taylor Swift back into this. But I think today people are making choices. And they're spending money where there's promotions, where there's discounts, or they're moving from beef to chicken or they're moving from Kroger to Walmart. Do you still hear from companies that have vacancies unfilled? What's going on with that? You do hear vacancies. It's narrower.

So it's really places with skilled trades, nurses, mechanics, auto mechanics, those are the kinds of places where people are still hiring in small towns. And we were together in a small town, but you just don't have the same supply of labor in small towns. That's where they're vacancies. And when I'm talking to the bigger companies, what they're telling me is, you know, I'm just kind of slowing down the hiring. You know, I'm going to let attrition work my workforce down. I don't want to fire people because I don't want to end up short again. But I'm just going to slow it down.

And then I've been pressing them. And I've been saying, but do you have plans for layoffs? Because, you know, if you're going to do a layoff, it takes you three months to get it done. And no one that's doing that, right? I mean, one person here or there. And so that's why I say we're in a low hiring, low firing mode. It just, that doesn't feel like something that's going to persist. And so it's going to move left or it's going to move right.

We'll just have to see. What's the urgency then on supporting the labor market? And there's obviously a debate going on right now about how fast deterioration in that market actually happens. We had Claudia Somme on the podcast. recently and she was talking about maybe it's different this time. But how are you thinking about the pace or the rate of change in the labor market? So the other thing it's happening in the labor market is a lot more supply of labor. And part of that is participation, prime age participations hitting 20, 25 year highs and immigration, which is up significantly. And so the last jobs report

where unemployment went up from 4.1 to 4.3, you actually added jobs, 114,000 jobs. We just just added 420,000 people to the workforce. So the denominator got bigger. And so, you know, there's some people who look at, you know, the unemployment rate and say, oh, my gosh, the labor market's about to fall off a cliff. That's not how I see it. You know, I see a loosening labor market being driven by a lot more supply. Now, what's the urgency?

It's not, we're not in a situation. I don't believe where there is this, you know, big cliff there. But when we make policy, you're trying to make it for a year from now, right? Because the lags of monetary policy, you're trying to meet a year ago. a year from now. And so you've got a labor market which is slowly cooled and you've got inflation, which is now gradually cooled? And so you sort of say, well, which do I worry most more about? And it's been very clear for the last two and a half years that all you'd worry about is inflation. And now those are much more balanced. And then you ask the question, okay, we've got rates in

restrictive territory. Real rates, if you look at the financial markets are a little bit over 2%. Maybe you can take a little bit of the edge off that. That's what I think, dialing down the level of restraint is the way I think the chair says it. But you can take a little bit of the edge off that in a world where your wrists are more balanced. That's how I think about it. I'm going to try to keep pushing you on this. And I'll see what you say. Well, this will be fun. You'll ask me the same question five times. Yeah, we'll see if I could get a slightly different answer each time. You know, there would be one school of thought that would say if you're concerned about potential weakening of the labor market, that the current low firing hiring is unsustainable

and the risks have shifted to the labor side, that you want to start the rate cut cycle and make a statement. And maybe that would mean 50 basis points versus, say, easing into it with maybe a few 25s strong out. How would you think about the different possible paths that the Fed can now take to reducing the risks of a bad outcome in the labor market? To me, the question is all conviction. You know, what do you convince of? And the stronger your conviction than the more forcibly you move, whether that's raising rates or lowering rates. And then the more that you're in a test and learn world, I think the more you say let's move gradually or deliberately or methodically, whichever your favorite word is. So to me, it's about conviction.

How convinced are you? And the scenario you just painted, you were extremely convinced, even convincing, if you want to put it that way, in terms of what you were trying to do. I think we'll learn more as the year goes on in terms of the data. In the same way that we did when we started raising rates, With inflation, we started small, and then we got convinced that inflation was not going away, and you had to move faster. So the more convinced you are, the faster and more forcibly you could move. In what scenario are you convinced of right now? Well, I've described where we are right now, which is we've got risks on the inflation

side still, and we've got risks on the unemployment side still, and we've got either one of them could go in both ways. So I'm very much a test and learn kind of guy in general. And we'll obviously learn a lot even before the next meeting, so we'll see what we learn. You mentioned data just then, and this has obviously been a big theme for the Fed, which is the idea of data dependency, not data point dependency to refer to how Powell has described it. But I guess my question is, how much confidence do you have in the data right now, given that we've been talking about and debating things like sentiment surveys for a couple years now? So I guess in this time in 2023, there was all the talk about the vibe session. And if you looked at the consumer surveys, people were basically describing the way they felt as if we were already in a recession.

And then setting aside the surveys, even the hard data seems to have a question mark over it at the moment. We just saw that massive revision from the BLS. So how much confidence do you have in the data and how are you sort of thinking of interpreting it at the moment? moment. So we do an SEP every quarter, and one of the questions is about level of uncertainty. And to me, that always fits into how confident are you feeling about what's happening in inflation, what's happening in employment. I actually think the data has come in in a very consistent way on both sides of the mandate over the last three or four months. I mean, I've talked to you about inflation, which has come down and broadened. You know, you now have the percent of price increases

over three percent or over five percent going back toward pre-COVID norms. And, you know, and you know, And that's very consistent with what I'm hearing with businesses and consumers as I'm talking to them. So what I think I'm hearing on inflation is very consistent. Same thing on employment. The labor market is loosening. It's definitely not overheated the way it was before. It's definitely not a problem either. You know, this low hiring, low firing is a perfectly fine place to be.

We're still adding jobs. So I think in both cases the data is coming in very consistently, and that gives me confidence. You may have been referring, though, to the benchmark revision that happened earlier this week. And that basically said for last year's data, which was ridiculously high, now it was just very, very high. And so, again, I didn't take that much out of that data either. What is different about the labor market now, and this is both a data thing and a reality thing, is this big increase in supply of labor by people who are seeing opportunities in the workforce and coming into the country.

And the question of how that does or doesn't overwhelm the job creation engine that we've got in the country, I think that is an area of uncertainty that we'll see play out over the next, you know, several quarters. On April 4, 23, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, The Killings. of Bob Lee, beginning April 16.

So I want to go back to something you said before, which is that you think there could still be upside risk to inflation, at least in theory. You know, Powell certainly didn't give that vibe today in his speech. At least from his speech, he didn't. If he thinks that there's still upside risk to inflation, he didn't talk about that. I'm curious why you think so, and what's your concern there? Well, I see inflation risk into upside risk. risk in two places. First is, we're at two and a half percent for the last 12 months. Our targets

two. So while we're doing great at bringing it down from when it was once 7.1, core is still at two and a half percent. And even the most optimistic forecast for the back half of this year, don't believe it'll get to two percent because the numbers are so good on a year or year basis. It's opposed to like a three month those. On a 12 month basis. Because the last half of last year was also very good. And so we're at least six months away, even with really good inflation data from the inflation numbers hitting 2%. If the numbers are just pretty good, not really good, there's a risk that we plateau at some level over 2%. That's one risk.

The other risk is I do see medium term inflation pressures that are out there. We have a conflict in the Middle East that could spiral. De-globalization is a very real risk, and that means that the imports of goods could be more expensive going forward, or if we're even reshore, more expensive. Housing is a place where if rates are to start coming down, One of the things I worry about is that will spool up demand for people who've been waiting to buy a house till mortgage rates come down, but there won't be any new houses built. I mean, that effect is two years, three years out.

And so what happens if you have more demand for houses with the same kind of supply? Or even if more houses come on the market, everyone who puts their house in the market is a buyer and a seller. So you'd still have this excess of demand over supply. So those things are potential inflationary risks. Now, good policy works against that. and if we do the right thing with rates, we're working against. But that's why I just want to make sure I understand it and see it before I, you know,

sort of declare victory. What's been the most surprising thing that you've heard at Jackson Hole this year? You talked about German savings rate, but beyond that, is there anything that caught your eye or? Well, Alan Blinder asked a question today that I thought was pretty interesting. He said, when you think about monetary policy lags, why aren't you talking about how to shorten them? and I've said almost as it's a given that when we raise or lower rates, it takes 12 to 18 months for the full effect to go into the economy. Well, part of that is because the economy doesn't behave in a way that would allow it to happen quicker. In example, I think the number is in 2009, 60% of these mortgages in this country were adjustable rate.

Today it's 8%. Yeah. Okay. And so when we raise or lower rates, it doesn't flow through to mortgages quickly. and certainly not even like it did 15 years ago. And I'm not saying we should change the mortgage market. But it does make you stop and think how much of our policy, the effectiveness of our policy tools is a given or how much could actually change over time as the economy changed. Yeah, does that those lags, I mean, we talked about them a lot on the way up. And you mentioned,

you know, you want to target for where you think you're going to be in a year. You know, on the way down, would you expect the sort of similarly long lags? So, okay, there's concerns. about the unemployment rate rising. We've already seen it go to 4.3%. Maybe it's for reasons that are not that bad this time because of the new supply of labor. But, you know, every recession that I can ever remember started with a debate about whether we're in a recession or not. And so I don't take a ton of comfort from the ambiguity because at the beginning, there's all ambiguity. And, you know, there's certainly the question of like, why did it take so long in such aggressive hiking? You mentioned that at the started the hiking cycle. You started small and then had to start getting big when they weren't

having the effect. You thought, do you have similar concerns in the other direction that we could sort of see the same problems except the room here? I actually think a large part of the economy is standing in readiness for the rate reduction cycle to start. And I've talked to lots of businesses that are debating when to start their capital spending. I've talked about housing a second to go. I've talked to lots of realtors who believe that once the mortgage rates hit six or go under six. So I think there's a lot of demand out there. And that is a little bit, that's both good news if you're worried about the economy or the employment. It's also risky if you're worried about inflation. I think that's out there. The one thing I worry about is when I talk to, especially

real estate developers, about when rates are back to normal, a lot of times the number they have in their head is what the rates were in April of 2021. which was, you know, a mortgage rate of 2.6 percent. I talked to somebody this week about. Do you think that didn't happen? Well, outside of recession, I don't think that's happening. And so I just worry that expectations, you know, the yield curve is inverted, for example, which means the long term rate is lower than the short term rate.

When we lower the short term rate, which is all we do, it's not a given that the long rate is just going to come down a bunch more. It might, but it might not. And so I do worry a little bit that there are hopes out there that aren't in, you in alignment with reality. Or there are plenty of people that think inflation coming down means that prices are going to return to like 2019 levels. Yeah, which doesn't really seem realistic.

On this idea of normalization, just going back to the labor market, but people bring up that term and say, oh, the labor market is normalizing. It's coming down from being red-hot to something, you know, more reasonable, more healthy, potentially. But what are we normalizing to, in your opinion? Like, where do you think we're actually heading? And is it possible that the labor market in 2025 looks very different to, say, 2019 or 2018? In a perfect world, in a theoretical world, we would lower our rates down to the neutral rate, R-star. And at that neutral rate, we would neither be stimulating nor restricting the economy. And everyone who wants a job would have a job, and inflation would be low and steady,

and we just rock on. That's not actually. actually how things work in practice. Things come in from left field, both good news and bad news, inflationary and recessionary. And you have to just make policy against what you've got. And so if you look at our forecasts, most of the SEP estimates are that the neutral rate somewhere between two and a half and three and a half percent. That's for the overnight rate. The confidence interval when you get into the models would add another hundred basis points on either side of that. So maybe it's one and a half to four and a half. And so the notion it gets back to the conviction that I was talking about earlier, if you thought you knew and you thought,

you know, we had hit the soft landing and we were there, you would just lower the rate to the neutral rate. You would declare victory. You'd have a party. You'd put on the vest. The mission accomplished, all of that stuff. It just doesn't feel like the right way to do it. And that's why I call myself a test and learn person because I think you sort of want to feel

your way there. And you'll learn based on whether inflation has settled or is accelerating. You'll learn based on whether the labor market is growing or shrinking. You'll learn those things as you go. when you adjust rates is appropriate. If the unemployment rate were to say drift up by another half a percent, would that be mandate consistent? At what point does the unemployment have to rise in your view to say, no, this is?

Because so Powell said, he doesn't want to say any more labor market weakening. There's no more. At what point does labor market weakening mean you've actually like lost that leg of the mandate? I mean, most people think the U-Star the neutral rate for or the non-inflation exciting rate of employment is about four, four and a half, somewhere in that range. And I suspect that's what he was referring to when he said that, because if it's at four or three today, that's kind of what most people think U-Star would be. I think I should come back to an important concept, which is it's impossible to be perfect here. And so we can spend lots and lots and lots of time

trying to navigate between 1.9% inflation and 2 and 2 and 2 and 4.3% employment or 4.4 or 4.2. And so I think it's really hard to land it in a perfect place and then have it just stay perfect for forever. The unemployment rate always seems to be moving. Yeah, these things are always moving. And so you react to the economy you've got. And if unemployment is 4.8%, that's higher than I think most, if not all of my colleagues' assessment of what would be neutral. And so that would be something you'd want to work against. And you'd work really hard against it if inflation was under control.

And then you'd have some challenges if inflation was out of control. So those are the kind of debates you have. And we even said in our framework, you know, you got to assess the balance of risks across the two mandate goals. I mean, that's the challenge with having a dual mandate. Okay, Tom Barkin, thank you so much for coming back on all thoughts. Really appreciate it and great to catch up with you in Jackson Hole. And we'll all travel again together soon, I'm sure.

I hope so. Any time. Joe, that was fascinating. And I'm so glad we could get the perspective of an actual policymaker who has been attending, what was it, seven? these things. Yeah, that's great. I really like talking to Tom. It's interesting to hear that he, at least from what we're, you know, what he said, it sounds like he views things a little bit differently. Yeah. And Chairman Powell's. So like I said, in the speech that Powell gave,

there was no talk of inflation risks at this point. It was interesting to hear Tom outline multiple reasons. And I think that housing one in particular is very interesting. The idea that like you have this lever, which is you lower rates, and then people flood back into the housing market and the prices go up and then you just sort of like it's interesting it seems difficult to calibrate yes the impact of a rate cut right now there is that sort of reflexivity where you're addressing a potential issue but by addressing that potential issue you could release additional demand and activity he also said and i was thinking about asking a follow-up but he said it which is that you know when you described the low hiring low firing, that there is still this residual concern about being caught short labor among

businesses, which I think is something we've talked about a lot. This could be this persistent phenomenon, not just in like this moment in the cycle, but for a while the memories of being caught short labor, as people to cut labor hoarding or whatever, and keeping, you know, hopefully perhaps a lid on where the unemployment rate goes. Well, that's true of inflation too, right? And Barkin has spoken about this, this idea that, well, companies learn that they can raise their prices in an inflationary environment. And so perhaps the next time inflation risks start to emerge, they'll be even faster at doing that. Well, I think that we need to start propagating the notion of employment expectations. So the idea of inflation expectations, right,

is you want to keep inflation expectations well anchored because if people start to believe that inflation is going to rise, then they're going to behave as if inflation is going to that will create inflation. I don't really understand why you don't hear the same conversation about employment expectations, which is if you think the unemployment rate is going to stay low, then you are going to be slower to fire for the exact reason he said, and that will keep the unemployment rate low. And so I believe that actually there is an opportunity to sort of like realize that this sort of the expectations but get reality story that people tell on the inflation side could also play out on the employment.

side. Yeah. I mean, we kind of saw that already post-2020, where everyone was talking about labor shortages, and so they sort of manifested themselves. And so I think we need to start hearing Fed officials that we need to keep employment expectations well anchored. I like that. Thank you. You should write about that too. I will. Okay. Shall we leave it there? Let's leave it there. This has been another episode of the Allotts podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Joe Wisenthall. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez, at Dashel Bennett at Dashbot and Kel Brooks at Cal Brooks. Thank you to our producer, Moses Andam. More Oddlots content. Go to Bloomberg.com slash oddlots. We have transcripts, a blog,

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