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The Fed’s Thomas Barkin: It’s the “oscillating economy”

In a speech at the 2023 SIEPR Economic Summit, the Federal Reserve Bank of Richmond president explained why the inflation fight is far from over.

Is the U.S. economy cruising along to stability or careening toward a precipice? Thomas Barkin explained in a keynote speech at the 2023 SIEPR Economic Summit why he thinks, amid mixed signals, there’s plenty of reason to worry.

“I’ll call it the oscillating economy,” the president of the Federal Reserve Bank of Richmond told the hundreds of policymakers, business leaders, and academics who had gathered at Stanford for the first Summit to be held in-person since before the pandemic. While he thinks the job market and consumer spending aren’t as strong as the most recent data suggest, inflation will likely remain a problem — leading the central bank to hike interest rates, but at a slower pace.

He predicted that, while inflation has peaked, it will take at least until 2025 for the rate to return to the Fed’s 2 percent target. “If you back off on inflation too soon, it comes back even stronger,” Barkin said.

One reason for inflation’s persistence: Americans are still sitting on $1 trillion in excess savings they accrued from pandemic lockdowns and government stimulus. This spending, coupled with product shortages brought on by disruptions in supply chains, has given businesses power over prices they haven’t had in at least a decade.

“Pricing is back in play,” Barkin said. “And I think we’ll continue to see pressure on prices until customers and competitors reassert themselves.”

When asked by moderator Chenzi Xu, a SIEPR faculty fellow and assistant professor at the Stanford Graduate School of Business, why the surge in inflation rates — the highest in 40 years — appeared to have taken monetary policymakers by surprise, Barkin said that expectations play a big role in how prices move. “We’ve had anchored inflation expectations for decades,” he said. And they held up through prior shocks, like 9/11 and the global financial crisis of 2007-08.

But cumulative events, both at home and abroad, since 2020 have unmoored those expectations. “The combination of A + B + C + D just overwhelmed the ability of the market to come back to equilibrium quickly,” Barkin said.

One problem is that monetary policymakers are dependent on the data, which often lag by a month and are often revised multiple times. In the 10 years before the pandemic — which Barkin said may have been the most economically stable ever — month-old statistics on spending or the labor market were manageable.

That’s not the case anymore, he said. In addition to traditional measures, he now tracks weekly credit card sales to better understand changes in consumer spending and the labor force participation rate — or the percentage of working-age Americans who are employed or actively looking for work.

“I try to learn by gathering real-time information from businesses, from community organizations and from groups like SIEPR,” Barkin said.

Watch the full keynote address and discussion.