(2) Richmond Fed President Tom Barkin: Got a shot to bring inflation down ‘very close to our target’ - YouTube https://www.youtube.com/watch?v=tL-ecCTFwfI

Transcript: Liesman: Tom Barkin the Richmond fed president Tom thanks for joining us around the table takes a bit of Courage for you to be here um right and face this Rogues Gallery here but uh let me start off in an unusual Place rather than hammering you about what you think about interest rates and that which we’ll get to you started off many many months ago with this idea about inflation and and the profound Insight you brought was that inflation is not this abstract process it’s this idea somebody has to raise prices somebody has to pay them and you were very tuned into the corporate culture given your business background of companies having the ethos or the culture of raising prices compared to what it used to be where are we at now in your opinion in your discussions with business people is this culture of raising prices still in effect right now such that it causes you concern about future inflation

Barkin: good so thanks for your nice words you know what I’ve been saying is that for 30 years before covid price Setters had been beaten into submission that you really didn’t have the power to increased prices uh and consumers had grown with the expectation that prices weren’t going to go up it’s just very hard uh to do anything so you have two years where all of a sudden people have the power to increase prices and they have logic for it wage cost supply chain uh you know Revenge spending uh whatever and so given the opportunity they do it now I definitely think we’re on the back end of that journey I mean when I talk to price Setters they know that inflation has come down and they know that a lot of these extraordinary price increase uh pricing power is no longer uh you know in their hands but I think they’re still pushing and it’s a little bit of what we saw uh in the data yesterday um a fact that I think is useful if you go back to the 10 years before covid um 26% of the pce basket had price increases greater than 3% if you look at the last 12 months where it’s 2.4%, 55% are over 3% and so you still got a world where people are increasing at more than normal or more than historic levels luckily it’s been offset over the last 12 months by a bunch of places like used cars that are coming down but it’s not the spread it’s not the dispersion that we used to see you still have more pricing power out there and like I said luckily it’s being offset by some amount of prices coming down

Liesman: in my mind when I think about the story you tell I think about a dam breaking and now you’re trying to you know shovel mud back over the flow of the water and put that Dam back into place one of the things people believe is required is slower consumer spending and slower growth but you don’t seem to be getting that so does that make you pessimistic about the idea of bringing down inflation

Barkin: well the places where it’s coming down the most nicely is in goods and you do find that a lot of these good sectors Home Improvement would be an example you do see slower growth and so I do think that slower growth has taken the edge off I do think whatever combination of excess inventories or the big box retailers negotiating a little bit harder you know has brought um uh has brought prices back down and you may need that in the rest of the services part of the economy uh you know vacancies for example on the apartment side are rising slowly you may need a little bit of vacancies to bring the edge off of that as well

Liesman: let me go back now to where Joe started which is what was your view of those of that inflation data yesterday do you see it as an anomaly or is it raised concern that we’re on the Leading Edge of a re acceleration

Barkin: I mean I try to discipline myself not to take too much out of January that’s the first thing January in general January data I mean you’ve got weather issues you’ve got uh seasonality adjustments which are extreme and even more extreme because we had a couple Omicron waves you know during covid so I’ve tried to discipline myself not to look at January too closely um and by the way that was true of last January uh too where you remember we saw a blowout January. That said it’s consistent with the story that I’m hearing which is on the good side inflation settling on the services side not so much and of course you’re dealing with this uh balance issue and let’s see where we go over the next few months

Liesman: do we need to rethink everything we’ve learned about the relationship of a strong economy and inflation and is it possible that that AI productivity could allow us to stay at full employment and not have inflation I mean that would be amazing would would it not

Barkin: nobody’s rooting against that so that would be great productivity could well be part of the story um but as you know we’ve had good productivity numbers the last um couple quarters but if you take a four-year lens and you have to do that I think because of the dislocations of the pandemic what you’ll see is productivity went up productivity went down productivity’s gone up the four-year number is about where it was before Co a little bit higher so if you think that AI is going to come and bring great productivity that’d be awesome. one of the issues that I’ve been wrestling with in my mind is that to the extent that cost increases are driving inflation in sectors like construction right? how much is AI going to help you in those sectors right it’s going to help you in a lot of sectors professionals but is it really going to help you across the

Liesman: has anyone ever at the Fed said we’re at 3.5% employment we need to get to five to to cool off inflation is that has anyone ever said that’s what we are going to aim to do

I haven’t heard anyone uh is it implied is it do you think we need to do that or no

Barkin: I think we need to bring inflation down and by the way with spending normalizing with labor availability increasing with a lot of the supply side uh issues that we had during Co coming down um inflation’s coming down and at 2.4% you know we should be cheering that not you know criticizing it on the other hand we’ll just see how much more you know has to happen to get the perfect world I just don’t know if it exists if we could do it right you’d like that wouldn’t you I would and we’ve started saying maybe it’s possible

Liesman: I would absolutely love it it’s an interesting uh uh we’re going to talk about that later but let if you don’t look at January and think much of it if you see a similar sort of gain um in inflationary numbers for the month of February is that something that starts to concern you

Barkin: yeah oh sure um one data point is one data point all of a sudden two data points you can draw a line between them and with three you can draw all kinds of geometric shapes and so um I think the more you see that let’s not forget that in the seven months before January we got very good inflation readings in total and then in January we had a not very good inflation reading so we’ll see where are as the months go on I think it’s a important uh time because the overall numbers are likely to come down over the next few months because the comps from last year weren’t very good and so we’re rounding over we’re losing those those High inflation comps and so we’ve got a shot here to bring inflation down you know very close to our Target um on the other hand if the monthly numbers come in at a level inconsistent with where we’re going that’ll tell us something different

but you don’t sound like you’re in a rush to cut rates

I’m never in a hurry uh to make any decision we’ll get to the meeting we’ll see what we learn

“We’ll see,” Barkin said in an interview with broadcaster CNBC when asked about the possibility of interest rate reductions this year. “I’m still hopeful inflation is going to come down and if inflation normalizes then it makes the case for why you want to normalize rates, but to me it starts with inflation.”