Fed Is Still Assessing Impact of Iran War, Barkin Says

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Introduces Tom Barkin, president of the Richmond Fed, and notes the low-fire, low-higher, tariff-affected economy seems stable.

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Tom Barkin

Disagrees with negative productivity view; cites 2.8% as a good number driven by company investments in processes, staffing models, and automation, with results visible today.

Attributes productivity gains partly to AI but more to operational improvements made after being short-staffed three years ago.

Notes productivity holds down inflation and maintains margins despite rising input costs, then asks about the impact of the Iran war on prices and the economy.

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Tom Barkin

Has no sense of duration or implications but is watching oil prices; notes pump prices have jumped recently, which matters for sentiment and crowds out other spending.

Acknowledges the US is no longer a net importer but emphasizes the psychological and spending impact of pump prices.

Recalls 1970s oil shock led to Fed easing mistake; asks if current situation puts rate cuts on hold.

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Tom Barkin

Will go meeting by meeting; higher gas prices are inflationary; textbook policy looks through short-term shocks but not long-term ones.

That assessment will be key for policymakers.

Notes pre-war view was at peak tariffs with inflation falling later this year; asks where Barkin stands on inflation progression and timing for cut decisions.

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Tom Barkin

Fall business conversations suggested limited pricing power and consumer exhaustion, indicating backside of inflation. Recent months of higher inflation pause that conclusion.

Cites consumer pushback via not purchasing, private label, trading down, or repairing.

Asks if businesses, having absorbed costs, would have to raise prices if input costs increase further.

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Tom Barkin

Productivity is key; businesses expected to pass on tariffs last April but got consumer pushback, so prices didn't rise as expected. Healthy margins are due to productivity absorbing hits.

Cites 13% earnings growth in Q4 year-over-year as evidence.

Asks what businesses say about employment, noting low hire, low fire trend.

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Tom Barkin

Businesses describe labor market as pretty open, maybe even loose, with high availability and low turnover. Example: poultry processors replaced workers easily.

Recent employment data has been reassuring with unemployment down and low jobless claims, though narrative still suggests loose market.

Suggests Barkin thinks risks to inflation and employment are roughly balanced.

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Tom Barkin

In fall, risks were tilted toward labor market downside and inflation downside. Recent data suggests movement in the other direction.

Asks if monetary policy is set to bring down inflation or if it's too tight.

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Tom Barkin

Policy is modestly restrictive, which should help grind out the last mile. Not highly restrictive given continued strong demand.

Reflects that demand growth over the last four years would have been an outlier prediction when rates first rose.

Asks about dynamics with new Fed Chair Kevin Warsh, noting chair's power is persuasion.

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Tom Barkin

Likes and respects Kevin Warsh, trusts he'll do a good job, looks forward to working with him amid smart, opinionated colleagues.

Asks Barkin's view on Warsh's proposal for a smaller Fed balance sheet.

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Tom Barkin

Instinctively likes idea of Fed having smaller footprint in financial markets, subject to operating policy effectively and avoiding severe market reactions.

Asks about Warsh's desire for less Fed official conversation and more coordinated public interaction.

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Tom Barkin

Values his district-oriented outreach to chambers of commerce and rotary clubs to put a face on the Fed and gather economic insight.

Emphasizes he doesn't discuss his own rate cut projections but rather exchanges views on the economy.

Asks if Barkin would like Jay Powell to stay on as a Fed governor after his chair term.

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Tom Barkin

Likes Jay Powell tremendously, thinks he's done a spectacular job, and wants what's best for Jay.

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