Yahoo Finance Presents: Richmond Fed President Tom Barkin

[Music] well joining me now is the president of the federal reserve bank of richmond that's tom barkin from hughesville maryland hi there president barking how are you good thanks for having me on today so i want to get started with a conversation just about the economic outlook so obviously this week we had a record amount of new covet cases over 180 000 but on the other hand we've also had positive developments on the vaccine so pfizer biontec saying their vaccine today is uh 95 effective we got the modern news on monday as well so both those things together net net are those developments causing you to revise up or down your economic outlook well you've got near term and you've got medium term uh obviously one of the uh scenarios that we were all worried about uh one two three four months ago was a second wave scenario i think if you look at the case rate at the hospitalization rate today you have to say uh that it's elevated and uh and i take from it that as cold weather comes and people spend more time inside uh the infection rate is gonna increase and so i think for the next few months it'll be a challenge it'll be a challenge as uh people try to adapt to the their perception of increased risk i think it'll be a challenge as governments try to adapt to what they can do to handle that on the positive side i think these vaccine results have put a light at the end of the tunnel and most people i talk to suggest it's summer when you're finally going to see the light as opposed to next month but i think that's a very positive thing for businesses who you know now might see a path to invest and certainly for some uh people in those harder hit industries who now might actually see some hope at the end of that uh at the end of that ride when we get that vaccine distributed now at the same time it seems a lot of businesses and economists for that matter are not hanging their hat on that vaccine saying that it's still going to be some time before we get that as you just pointed out but in the meantime if it is indeed you know until next summer that we get something would that force the fed to do more if we're on the trajectory that we're on with the amount of coveted cases and deaths right now and if so the fed having to do more what might that mean or look like in your view well we're doing quite a lot we've taken rates down to near zero as you know um we've put forward guidance in place that says we're going to keep rates low until such time as we're through all this and we're engaging in asset purchase which are incredibly high by historical standards i'd also say that every month we engage in those asset purchases is more stimulus in other words we did it last month but if you do it again next month and the month after that's more stimulus and i i think that's a lot of support to the economy in terms of whether we would do something different or more let's just see how it goes i mean we're projecting a lot let's see how it goes so i want to shift gears now to the framework review the fed saying that it will tolerate inflation rising moderately above its 2 target for some time in addition to trying to get to maximum employment but an important caveat to that it sounded like was that the fed could tighten or adjust the policy if it felt like financial stability risks were emerging in your view what might be a financial stability risk that could be substantial enough to cause the fed to to rethink or recalibrate its policy well um in this review we acknowledged i think a couple things that were certainly clear to me beforehand and perhaps to others you know one is that uh there's nothing bad about low unemployment and the notion of being preemptive with low unemployment without signs of other risks um was probably not the move we need to make and so i think we made that clear i think uh i certainly was in the mood of being willing to tolerate moderate overshoots of inflation i think it made that clear as well and then i think it made clear that uh sound economy requires financial stability and so all those came clear in both our framework discussion and also our most recent statements which have said we'll keep rates low until quite long time certain conditions on that and then that'd be true unless we saw risks develop i think we'll have to see what kind of risks develop i do personally look closely at the implications of lower for longer policies on people's reach for yield behaviors and on the build-up of leverage and so the thing i personally spend time looking at is leverage and leverage on personal balance sheets and leverage on corporate balance sheets you know i'd i'd point out that while corporate leverage is somewhat uh personal leverage is actually still somewhat down we've seen credit card uh payments actually go down quite a lot over the last uh six months credit our balances go down quite a lot over the last six months um but that's what i focus on now how that plays into you know what we do with rates or asset purchase or whatever i think would be to determine but that's that's what i look at because if you're not going to have a sound economy without a stable financial system and i guess just to be clear that's not necessarily saying that you see that as the case right now financial leverage building to a level that would be we've heard people fly for example leverage loans but you know where do you see i guess those pressures right now yeah there are elements that historically elevated but in total i don't think leverage at this point is uh at historically elevated levels that's what i'm watching so another part of the framework review is the real focus on inflation we did get an interesting remarks from vice chairman rich claretto this week saying that his approach to uh personal consumption expenditures one of those measures of inflation is going to look at the average pce using august as kind of the start time frame which is when the framework review was unveiled it wasn't clear to me based off of each of that's uniform whether or not each member of the fomc is beholden to that same interpretation so i guess from your vantage point as one of the members of the fomc is that also your interpretation of how to measure when inflation is moderately above its target or are you kind of free within a range to kind of evaluate inflation on your own criteria um well i think what i'd say first and foremost is um you know we're pretty explicit in the communication around the announcement of the framework review that we're not going to a formulaic concept we're not talking about add up this divide by that and the if the average is you know greater than x we do y and less than z we do something else so um i think we've made that pretty clear so i i don't uh have an average uh formula focus uh and i think it's it's judgment based against the words we've got in that statement um so that i think maybe i'll just pause there yeah well i mean i guess what's interesting too is that the vice chairman was saying it's not just core pce as uh you know lagging indicator that we're looking at it really is more about inflation expectations and a dashboard of other data as well what do you watch on that front uh i watch actual inflation i watch inflation uh expectations and as a lot of people said including the vice chair there's a lot of different ways to measure inflation expectations and it's uh it's hard to get precise i also try to as best i can access the minds of those people who are price setters in the economy i spend a lot of time as you know engaged uh with businesses as we do for example a cfo survey which has pricing as one of the key things they're looking at i'm just trying multiple ways to see uh what are people expecting in terms of uh inflation and how much pricing power do they feel they have i think you can learn a lot uh there on the ground so uh you mentioned on the ground again you're in hughesville maryland right now meeting with contacts you're a person who's been very strong in the business world as well um switching to the other side of dual mandate from inflation to employment we know that the federal reserve is really pinning its hopes on trying to get back to where we were before the crisis based off of your conversations with business owners workers those who have lost their job in the fifth district the richmond fed uh how far away are we from full employment right now in november well we're certainly far away from uh where we were in february um if you held participation constant the 6.9 unemployment that we've uh reported would actually look like 9.4 today it's about 10 million uh jobs and that's about 6.6 fewer jobs than we had before the crisis and that compares to you know at the peak of the great recession we were down 6.3 percent so we're still pretty far from uh where i think would be full employment now the challenge we've got is that the jobs that have been surplus are disproportionately all in one type of job you know personal contact service workers and those personal contact service workers are disproportionately young and they're disproportionately people of color they're disproportionately in the bigger cities and the jobs that are actually if i talk to employers i hear a lot of people talking about they can't find workers and those employers who can't find workers are disproportionately in manufacturing they're dispersionally in technology they're disproportionately in healthcare and they're disproportionately in some of the smaller towns and so one of our challenges here is making that match and it's hard to make a match when we may have a vaccine and may roll out in a couple months and we may go back to normal anytime soon so people's willingness to invest in retraining or reskilling or invest in moving to a new geography is limited so i think we've got a mismatch issue right now that is leading some people to actually have to raise wages well before you would think it was full employment because we've got this i'll call it a temporary mismatch between the people and the skills that have been surplused and the people the skills locations where they need to hire people and that's the place i'm very focused right now as i talk to employers as i talk to people who are out of work so when we talk about building the bridge for some of those disproportionately effective people in the meantime they've had unemployment insurance but there's something interesting about how the pandemic emergency unemployment compensation which is the extended benefits for longer term unemployment in addition to pandemic unemployment assistance for gay contract workers that aren't normally eligible for ui those benefits that are part of the cares act are going to expire december 26th we know this is going to be longer than that even that these people will be out of work what would that cliff do based off of what you were just saying about how dire it is for those people to get help and do you think that puts an onus on policymakers to do more well those benefits do expire and certainly uh for a number of those individuals affected i think the question of whether they can get access to additional benefits to bridge them is an important issue i don't know how big a cliff that'll be for the economy on any given day and the reason for that is there's been a lot of stimulus already put into the economy and i've been intrigued with numbers that have shown excess savings if you will in the u.s population somewhere in the range of about a trillion two since april and that trillion two unlike most savings rates is actually pretty evenly distributed across the population so if you want to think about it this way the bottom quartile has about 300 billion in excess savings now not everyone has that and so some people who are really close to the edge are going to be in trouble i was talking to utility today about some of the issues in terms of people not paying their electricity bill those are people close to the edge and they will need a bridge of some sort but in total for the economy i think that money will continue to bleed in to the economy at least you know in the bottom quartile bottom half for some time and that'll bridge the total numbers somewhat um and so i do think we've got to think about the folks at the bottom end we do have to think about them individually and how they're going to bridge to what comes next that's different from the impact on the economy in total all right well a very thorough conversation as the economy continues to face a pretty important inflection point with the covenant cases rising but again tom barkley and president of the richmond fed thank you so much for joining us here on yahoo finance this afternoon thanks great to be with you

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Id: vyI6eAeuK7M

Length: 12min 55sec (775 seconds)

Published: Sat Nov 21 2020