WHEN: Today, Wednesday, November 29, 2023
WHERE: CNBC’s CFO Council Summit
Following is the unofficial transcript of a CNBC interview with Richmond Fed President Tom Barkin and CNBC’s Steve Liesman live during CNBC’s CFO Council Summit today, Wednesday, November 29.
All references must be sourced to CNBC CFO Council Summit.
STEVE LIESMAN: President Barkin, thanks for joining us.
TOM BARKIN: Please call me Tom.
LIESMAN: Tom, right.
BARKIN: And I’m here on behalf of the 53 percent of you who thought we were doing a good job.
LIESMAN: Well, maybe you’ve got to convince the 47 that think you’re doing a lousy job.
BARKIN: 33 percent fair, that’s what I heard.
LIESMAN: That’s all you need, right? You’ve got a low bar, huh?
BARKIN: — 86.
LIESMAN: I want to start off with where Tyler and I just left off, 5.2 percent GDP growth in the third quarter. Is that too fast? And to what extent do you expect to slow down now?
BARKIN: Well, I’ve been saying from the beginning that there’s a disconnect between the data that’s coming in, especially in the third quarter, and what I’m hearing on the ground from talking to people, including many of you. And what I was interested in the revision is the total number went up, but the consumer spending number came down.
LIESMAN: Right.
BARKIN: And that’s more consistent. That’s directionally more what I’m hearing, which is, when I talk to businesses, and I’ll be interested what you have to say in the room about CapEx, I’m not hearing the sort of savage cutback in CapEx that you hear before a recession. I’m hearing people investing through the cycle. That’s business investment. That’s — that is what got marked up in this revision. Consumer spending, I do hear consumers at the low end being stretched at the middle, trading down at the high end they’re, of course, still spending. But, you know, I’m hearing that starting to pull back, and that’s more of what we saw with that revision this morning.
LIESMAN: I think it was interesting, Tom, I guess it was a month ago, you kind of took a break with the data and you said, I see this strong data, but I don’t necessarily believe it.
BARKIN: Yes.
LIESMAN: What are you expecting in this quarter? How much of a slowdown do you think is going to happen with the economy?
BARKIN: It’s going to be a weird quarter from a reporting standpoint because it’s Christmas. The seasonality has all gotten messed up. And if you remember last year, we had a very strong October Prime Day. We actually had a pretty weak November, December, and then we had a very, very strong. January. So, when you look at the year over years of the Black Friday stuff, you’re going to have to adjust for that, because it’s just — it’s going to be a different kind of stuff — and COVID sort of messed up the seasonalities even more broadly. But I’m hearing consumer slowing down. I mean, that’s what I’m hearing. I’m not hearing consumer falling off the table. I’m hearing normalizing, not recession, but I am hearing consumer slowing down.
LIESMAN: Is it all together? And I mean the consumer, the business investment, the government spending, enough of a slowdown for you to believe we’re on a trajectory to get inflation back down to the 2 percent target?
BARKIN: I mean, I’m skeptical that price setters at this point have gone back to where they were pre-COVID. One of the exercises I like to do in a group, maybe we can do it today, is to ask, you know, how many of you are back to your pre-COVID pricing levels? How many are actually, you know, reducing, and then how many are increasing? And I’ll hear 50, 60 percent. It’s a lot like what you thought about the Fed, 50 or 60 percent will be saying, we’re still increasing at higher than pre-COVID levels, whether that be because of margins that haven’t fully been recovered or costs that are still being faced, wages being a big part of it. Or frankly, because they can. And, you know, before COVID, I think 20, 30 years of 2 percent inflation, price setters had basically just been disciplined to say, don’t bring something outsized into this conversation. We don’t have the ability to convince buyers to buy it. And that’s been reinforced by globalization and the access to low-cost content from other places, reinforced by e-commerce, the ability to shop around, reinforced by the power of big manufacturers like the automakers and big box retailers to push back, and all of that meant that don’t bring in price increases. That’s just not something you can sell. And then, of course, what happened during COVID is the combination of huge cost pressure and supply chain outages meant that you could do something. And guess what? People pass them through. And so — and you guys are all CFOs. I just don’t know that people are going to give up that power until they have to. And there are people that have to. I mean, as I talk to people in apparel, that’s clearly gone to the other side. But, until you have to, it puts money to the bottom line faster, it — you know, there are costs that have to be recovered. I still hear people doing that. So, I think they’re going to have to get convinced, and as somebody said before I started, I don’t think 5.2 percent GDP growth or 3.6 percent consumer spending growth is what convinces people that they no longer have pricing power.
LIESMAN: It tells you that you could keep going?
BARKIN: Well, or give it a try. Or give it a try. And that’s what I hear.
LIESMAN: You want — go ahead.
BARKIN: Sorry, we’ve talked before —
LIESMAN: Yes.
BARKIN: — if you look at the major consumer products companies, and maybe there’s some here today, and you look at their price and volume numbers pre-COVID, price up 1 to 2 percent, volume up 1 to 2 percent. At the height of COVID, price up 20 percent, volume up 1 to 2 percent. Today, it’s still the case that price is up 8 to 12 percent, and now, volume is sort of down 3 to 4 percent. That’s not a strategy that lasts forever. I mean, as volume goes down, you’re going to change it. But it’s pretty bold to then say, OK, we’re not going to try any more price increases, and we’re just going to take on this 4 percent volume decrease. I just don’t see people doing it until they have to.
LIESMAN: Interesting. It raises a question. What did Barkin do before he was at the Fed? Oh, maybe he was a CFO.
BARKIN: Yes, I was. But my successor is here somewhere. He’s doing a much better job. Hey, Eric.
LIESMAN: So, I’m sorry, Tom, but you kind of skirted the question a little bit, and it was a good answer, but —
BARKIN: Well, I was preparing to skirt some other questions later. So, I’m sorry that I skirted that one so quickly.
LIESMAN: Well, don’t think I’m not going to notice.
BARKIN: Yes, I know.
LIESMAN: Is it enough, the expectation of the slowdown, to think that you’re back on the track for 2 percent inflation?
BARKIN: Yes, I’m skeptical.
LIESMAN: Yes.
BARKIN: That doesn’t mean it couldn’t happen.
LIESMAN: Right.
BARKIN: If you dig into what’s happening in inflation now, and people like to cut it into three categories, goods and housing –
LIESMAN: Right.
BARKIN: — and then services X housing. The goods part is clearly coming back, and all that big spending on goods that have happened during COVID, you know, has come the other way. And people who are pricing goods have clearly come down. And so, you’re seeing lots of negatives in lots of categories, which are offsetting some positives. And the net of that is basically back to pre-COVID levels. On housing, it’s still elevated. And there’s a lot of people who are telling the story about how entry rents are coming down. And so, therefore, it’s just a matter of time before housing comes down. And while I think that entry rents have clearly come down versus where they were 18 months ago, I think they’re still going up. And if you saw Case-Shiller yesterday, housing prices are still going up. And so, I think that’s still got our ways to go on the housing side. And then on the services side, you know, I don’t know who’s gotten a property insurance bill in the last month, but that’s not going down, right? And there are a lot of other services that I see still going up, largely driven by wages that are still going up in many of those categories. So, I’m skeptical. I’m totally open to it. It’d be great if it did come down, but I’m still in the looking to be convinced category rather than the convinced category.
LIESMAN: Does that mean you’re also not willing to take another possible rate hike off the table?
BARKIN: That’s right. The, I think of this as a react to inflation sort of strategy, which is if inflation comes down naturally and smoothly, awesome. You know, there’s no particular need to do anything with interest rates if inflation is coming down. But if inflation is going to flare back up, I think you want to have the option of doing more on rates. And I guess the bigger point is, there’s no precision that anyone can point to at exactly what is the level of rates that exactly handles inflation in exactly the way you want to handle it. And so, you’re constantly trying to adjust on the fly as you learn more about the economy, as you learn more about the impact of demand on inflation, and that’s what we’re learning as we go.
LIESMAN: One of your colleagues, Fed Governor Chris Waller yesterday, said that if inflation keeps coming down, we could cut rates next year. What’s your opinion of that?
BARKIN: It’s a forecasting question. The markets and the Fed have been having a forecasting battle, if I could put it this way, for 18 months, where the Fed has done its best to tell a story about where we think rates are going to go based on a forecast of where the economy is going to go. And the markets have had a different view on that. And, you know, so far, I think, I guess because as we control rates, we’re still right on that. But I don’t see it as a, there’s a right answer on rates or a wrong answer on rates, I think there’s different forecasts out there, and there’s a forecast that looks like inflation comes down calmly, and my skepticism is poorly placed. And in that case, sure, you’d react to that. On the other hand, if you believe, as I believe, that inflation is going to be stubborner than I would like it to be, then I think talking about reducing rates at this point is just premature.
LIESMAN: So, does your forecast for next year, at this point, not include rate cuts?
BARKIN: The good news is we get to do the forecast next week.
LIESMAN: Right.
BARKIN: So, I’m up to, I’m upping my forecast next week.
LIESMAN: How about just quietly a little curtain razor on that?
BARKIN: Yes, no.
LIESMAN: All right. OK. All right. Very good. Let me move on to this, well, same notion. I’m going to come at the same question a different way. Market has a hundred basis points or more of rate cuts built in. Is that a problem for you as a policymaker that the market is down here, and you guys have, at least the average from the September forecast, is only 0.2?
BARKIN: So, you know, we make policy, but we really only control the short rate.
LIESMAN: Right.
BARKIN: That policy flows through the economy and finance, what we call financial conditions, which include the rate curve, but also include the reaction of the equity markets and the reaction of banks and their willingness to lend and all that kind of stuff. And so you do hope that the messages you send go into the market the way you’d want to through these financial conditions. The problem is we don’t really control financial conditions. And as we’ve seen in the markets just in the last three months where you saw long rates increase significantly in the summer and then come back down, you know, meaningfully over the last six weeks or so. They can jump around pretty significantly. So I try pretty hard not to get over focused on all that, because those things move around for reasons –
LIESMAN: Yes.
BARKIN: That include us, but include lots of other things. If you’re the market and you have a forecast for, you know, what did you say, four rate increases, four rate decrease?
LIESMAN: Yes, a 100 base points here.
BARKIN: First of all, that’s an average of a bunch of different forecasts. So you might have somebody who’s forecasting a deep recession and thinks there are eight rate decreases and somebody else who thinks there’s one or two at the end. And then, of course, the market as a whole might have a forecast. And I think if you look at the market inflation expectations over the last few weeks, they’ve come down quite significantly. And the market inflation expectations I think are consistent with a forecast that says, no problem, the Fed has got this under control, and we’re going to hit this soft landing beautifully. That’s great. I hope they’re right.
LIESMAN: You were, I’m going to say, pressant on November 9th when you talked about how you cannot use bond yields as an indicator for making policy because they’re too volatile. Well, guess what?
BARKIN: Yes.
LIESMAN: They were pretty darn volatile. It was five percent, and there were even some of your colleagues who were saying, well, it’s doing some of the work for us. This morning, we sit down, it was, it’s 430 on the tenure, 70 basis points lower. Like I’ve said, in a derogatory way, trading like a penny stock. But in any event, tell me about whether or not higher bond yields has done some of the work for you, and at this level, is it no longer doing any of the work for you?
BARKIN: We should probably do a travel log of longer-term bond yields over just this year. And you guys know this a hundred times better than I do, right? Which is, when you got to early March and we were looking at the January data and the economics looked extremely strong and the inflation was quite high, you saw long yields quite high. And then Silicon Valley came and they, you know, plummeted for about three months, and they went down I think almost a hundred basis points, you know, after the Silicon Valley thing. Then the summer, they went up, as Steve talked about it, now they’ve just come back down. And, you know, I think it’s been a journey, the markets discovering what the right price is. This is obviously influenced by a bunch of things including issuance of debt on the fiscal side and perhaps excitement of buyers on the other side. It’s just not a policy variable. I mean our policy variable is short-term rates. And as best we can, you know, exemplified by let’s call it the two-year yield, which includes both where the rate is today and where the rate’s likely to go. And, yes, it’s the case. If you go back to beginning of this year, people were pricing in two or three rate cuts for 2023–
LIESMAN: Right.
BARKIN: Which haven’t happened yet, in case anyone was wondering. And so, yes, that meant policy wasn’t as tight in 2023 as we were suggesting it was. But, you know, that all works itself out. I mean I had a different forecast of inflation than the markets did. Who knows who was right? In the end, I think it works itself out.
LIESMAN: So you said that it wasn’t part of your sort of forecast before, the fact that it went down doesn’t really change your sense of the influence of it on—
BARKIN: I think it’s totally legitimate for the markets as a whole or any of you to have a different forecast for what’s going to happen to demand an inflation over the next 12 months than I do. As you said at the beginning, we’re not all perfect on our forecasting. I think in the end, you play the game, and it comes out the way it comes out. And, hopefully, we do a good job of getting it right.
LIESMAN: Tom, one of the risks that you’ve talked about, and I guess from your background and what you do now in the, in the Fed in terms of talking to businesses, is the risk of the corporate bond sort of rollover. Where do you stand with that, in terms of how much of a concern is it that next year and then the year after, it’s like a trillion and then a trillion two and then a trillion four, how much of a risk does that represent to the economy?
BARKIN: Well, I might come at it from a different angle.
LIESMAN: Sure.
BARKIN: Now, an interesting fact, which I just picked up in the last month or so is that corporate interest payments as a percentage of corporate revenue, today, have finally gotten back to the point that they were at in 2019. And, by the way, it’s also true on the consumer side. Household interest payments, as a percentage of disposable personal income, have finally gotten back to where they were in 2019. Now that’s totally counterintuitive when rates are at five and a third, right? But what’s happened, of course, in both corporations and with individuals is you’ve refinanced your debt. You’ve paid down your debt. And so, the amount that you’re paying in interest while at a higher rate in some cases isn’t anywhere near as high a rate as would be indicated. And so, you know, there is a bunch of refinancing out there. You know, hopefully the economy will land in a place where this is not an issue. You’ve obviously got bank interest and capacity issues. And it’s nice that the banking system has stabilized the way it seems to have coming out of Silicon Valley. And then you’ve got cost issues. But on the cost issue, a lot of this is the price of higher rates, which has not been fully passed on yet. And will start to get passed on. And, again, we’ll see what the economy looks like at that time. If you’ve got a 5.2 percent growth economy, I don’t think we’re going to have an issue. If you’ve got a two percent inflation economy, maybe rates are in a place where there’s not an issue. I think your issue is, if you’ve got stubborn inflation and a difficult, you know, economy, which is your classic sort of stagflation conversation, then those could come at a time that would be tough for those businesses.
LIESMAN: Stagflation, that’s not your forecast, is it?
BARKIN: No, no. My forecast is inflation is coming down, but it’s going to come down stubbornly. And I think we will in the end have some sort of a slowdown here, because I just think as the rates work their way through the economy in the way that they’re supposed to, they will have the impact. I mean, it’s not like somebody changed the way the economic model works. And when they do, you’ll have some slowdown. And then I’m very much — maybe we’ve even talked about it. What you said at the beginning, I’m totally there, which is if you’ve been preparing for a recession for 19 months — by the way, the leading indicators have been predicting it each of the last 19 months then, you know, you’re less out over your skis in terms of credit appetite or inventories or capital expenditures or excess hiring, then you would have been if this had been one of those sudden kind of recessions that happened. So I do see a slowdown. I think a more modest one than the PTSD we all have from 2008.
LIESMAN: Tom, we’ve got a bunch of questions from the audience. I’m going to sort of dapple them into the conversation coming here. I really like this one. It doesn’t ask you what are you looking at, because everybody’s asked that question, the answer is always everything. But here’s a question from Doran Hole, Ameresco, it says, what are the factors influencing the Fed decision making that are not talked enough about in the broader market? Points that we talked about, employment, inflation, GDP, consumer behavior. Are there things that you’re looking at, thinking about that we’re not talking about enough?
BARKIN: Boy, I didn’t think I was going to get a new question here. Well, I think in terms of the economic data, you know what we’re looking at. I think all that’s pretty clear. I think there’s a constant amount of inquiry about the underlying assumptions is what I’d put on it. And the one that gets the most presses are star, for those who aren’t close to it, that’s what’s the neutral rate where you can either have your foot on the gas or your foot on the brake. And there’s a lot of analytic models in that. But I think there’s a lot of inquiry and debate back and forth about some of the underlying principles. At what point have we reached maximum employment? That’s another good one, you know. If you think, as many people do, that the neutral rate of interest is in the 2.5 percent, plus or minus kind of range, then how could it be that we could have rates at five and a third and have GDP growth at 5.2 percent? I mean, that’s like a basic, but I mean, those are the kinds of questions that get asked. So, most of my colleagues have academic backgrounds. There’s a lot of research and papers that are done and all this stuff. And so, I think the markets are very focused on the tactical. There’s a lot of thought being done on the, I’d say more conceptual, if I could put it that way.
LIESMAN: So another sort of follow-on to that really interesting answer is the inflation target of two percent. What if the world has changed to the point where you’d no longer have the persistent goods deflation to offset the persistent service inflation, you’ve de-globalized in a way, brought stuff back here? Do you worry that two percent is too low? Not that you can’t achieve it, but that the cost of achieving it is too high?
BARKIN: Yeah. And I get this question a lot. In part, because I think a lot of people would just like this to be done. It’d be a lot easier, I guess. A few things to remind you of. You know, one is, it’s not like two percent is some number that we’ve never hit. You know, three years ago, we were at two percent for the last 30 years and people were asking, how could you possibly get up to two percent? And so, it’s not some random number that’s been picked. It’s a very achievable target. Second of all, during the time we had that target, actually, inflation stayed low and the economy grew pretty nicely, so it works. Third, every international country has some version of two. And fourth and maybe most importantly to me, the Fed doesn’t have a lot of tools. It’s got one called interest rates. But the second one is credibility. And the credibility that people in the market believe that when the Fed steps up and says inflation is a problem, they’re going to take care of inflation. If you stop because you redefine the outcome, I don’t think you keep the credibility. And I’m not sure why anyone would think we would stay at three percent if we sort of got to three and said, OK, we’ve changed the target to three percent. Once you get to two percent, which I think we will, in relatively short order, then you can have a conversation about, you know, what target do you like for the long-term. I don’t actually like changing the number from two percent, but I have said publicly, I’m more than open to a range. And if you said the target is not two, but it’s one and a half to two and a half, I wouldn’t have a problem with that. In fact, I think it gets you out of a lot of these false precision debates about, you know, why are you going to keep rates high at 2.357 when you’re really looking for one — you know. And so, it’s something like that makes — and there are many other central banks that do something like a range. But again, that’s a debate after we hit our target.
LIESMAN: Right. I’d like – we have the next question from Tom Mireles from Murphy Oil Company. He says, do you think the U.S. is in sufficient control with its inflation rate? Or are there events and things happening outside the U.S., what China does, the Ukraine war, that affect U.S. inflation and make it much more difficult to control?
BARKIN: So, there’s a lot of things that happen that you can’t control. You were nice enough not to discuss fiscal, which a lot of people bring up —
LIESMAN: Oh, I got that next.
BARKIN: OK. Yeah, well, hold that. Didn’t you just have the Senator here a second ago? He could have answered that. Oil prices is a classic example of something else you don’t control. And I think you’ve got to take the world as it’s given and then make policy against that. The word transitory, which is a bad word, but it originally came up as people thought about oil prices because oil prices go up and oil prices go down. And you have to think carefully about how much you want to constrain or stimulate the economy in a world where you have a big variable that can go up or down. And so that’s how you think about those things. And so events come in from overseas, you have to decide how much impact it is going to have on inflation. And I believe one of the big mistakes that we made back in 2021, and then, of course, hopefully, starting to fix in 2022 is, how long these outside supply chain issues, if you want to call them that, were going to impact pricing. And what that was going to do — how much that was going to infect the rest of the pricing model for institutions across the economy. You know, when the Ukraine thing came up, and all of a sudden, oil prices also spiked and commodity prices also spiked, OK, you can’t bet on transitory. You’ve got to go do something when it’s that broad-based. Those are the kinds of things that come up. Total judgment calls about what happens on the outside. We’re a lot better off than England is, right? The U.K. has a real mess, in part because their economy’s almost all international trade. Ours is almost all domestic, even though we talk about international trade a lot. And so we are not vulnerable in the way that England is the other countries and what’s happening to relative currencies. They’re quite vulnerable.
LIESMAN: It was Paul Samuelson who said things take much longer to happen in economics than people think, then they happen much more suddenly.
BARKIN: Interesting.
LIESMAN: So here’s one, I think this is a good way to ask a question you don’t want to answer. Will the Fed chair and Fed governors and presidents advise the Congress in their responsibility for fiscal policy and reducing spending noting the previous ventures have made that publicly stated, that responsibility of Congress? This comes from Vibhu Sharma from Pacific Life.
BARKIN: Well, so, for those who don’t know it, Jay made his name after he retired from Carlisle, he actually made his name as a deficit hawk, and he was a debt ceiling guy. He actually went and presented to the Republican caucus on the debt ceiling and how couldn’t, you know, play around with the U.S. federal budget. So, he has a lot of history on this thing. And I’m tempted to just say, so, you should ask him. I’ll just say this. When we all took economics in college, we learned about monetary and we learned about fiscal. They both matter, right? And on the fiscal side, you guys know these numbers, after World War II, debt per GDP was 106 percent. Today — I’m sorry, in 2007, due to hard work by our forefathers and significant growth in the U.S. economy over 50 years, it was 38 percent. Today, it’s over 100 percent again. Trees don’t grow to the sky. The risk is of course that at some point the people who buy our bonds want to — a different rate for taking that risk. And whether that is supply and demand or that’s credit risk, you know, we’ll see. But I like your Samuelson quote, it reminded me of the Hemingway quote that said you know, you don’t go bankrupt — how do you go bankrupt, you go gradually and then suddenly.
LIESMAN: Gradually, then suddenly. Right.
BARKIN: But the risk is that at some point out there, and I don’t know whether it’s, you know, a year from now or 20 years from now, the people who buy long-term U.S. debt will say I want a higher yield for that particular risk, and that will hit the economy in the way you guys all understand.
LIESMAN: I think the question though, which I’ve had personally, is a little deeper in the sense that, does the Fed have a role in being something of a financial watchdog for the fiscal side? It is a role that had been played in the past. Greenspan got in trouble when he told us it was OK to cut taxes. And all of a sudden, we were back in the deficits, that was in 2000. But over the years I have watched, including Janet Yellen as Fed chair, say the debt is unsustainable. They have to get their act together. And being just a little more forceful when trying to nudge the fiscal side. Is that a big deal? Does it not matter at all?
BARKIN: I think Jay has done some version of that at some point, you’d have to go back and look at it, but I think he has. But I’m not — I guess I’d say two things. It’s not that obvious that everyone’s listening, you know, to me or us on that. I think, you know, if we’ve got issues with what Congress is doing you should take them to Congress. And then the second thing I’d say is, you know, we’re given a privilege on behalf of the American people to work the economy in an independent non-partisan way, and I think part of the deal that comes along with that privileges is, you know, don’t poke the people who give you that privilege. So, I just think we got our lane. Our lane is stable prices and maximum employment. Hopefully you think we’re working that lane as hard as we possibly can. And, you know, what I said on fiscal is what I personally believe, but I don’t think the job of any independent agencies to go to lobby Congress on what they think the right answer is for that.
LIESMAN: Pascal from AT&T wants to know, and I want to know as well, can you give us a roadmap to what it would take to lower rates in your mind?
BARKIN: Start with inflation, I mean, you want to get confident that inflation is headed back to target. And so, you know, I am deep into the month to month inflation numbers, in trying to understand how much this looks like the one time reversal of one-time increases that happened during COVID and how much this looks like, you know, price setters are truly realizing that we’re on the back end of this thing, and let’s go back to the way pricing used to be. So inflation score, I think if inflation remains elevated, I don’t think there’s any case for it, if inflation seems like it’s coming back to target, that starts to make the case for it. I think you then want to also look at the underlying drivers of inflation and ask yourself the question of whether they too have settled. So, you know, how comfortable would I be cutting rates, as somebody said earlier, at 5.2 percent GDP growth? I don’t know. That makes me a little nervous. On the other hand, if you start seeing the economy, you know, taking a meaningful step back in inflation, that — those are dynamics with inflation under control.
LIESMAN: One thing we didn’t talk about, and I think it’s very important to people in this room, is productivity. We’ve had a couple good quarters here. There was talk about productivity crashing in the wake of the pandemic. I feel like any day now I’m going to learn how to work the McDonald’s kiosk and make my own order there. I’m not there yet. But I think when I do, we’re going to have a measurable change in productivity. What’s your outlook? You talked about CapEx doing well through the cycle, which is not, as you said, what you’d expect before recession. Do you think these productivity numbers are here to stay? And do they play a role in your outlook on inflation and policy?
BARKIN: So, facts, productivity spiked in the first six months of COVID, believe it or not. Productivity plummeted in the next two years afterwards. Productivity has spiked in the last year. Those can be facts. And those can be the fact that, A, productivity is widely poorly measured. And B, if you lay off all your least productive people, as what happened in the restaurants, and then you hire them back, your productivity is going to go up and down and up and down. And so the better way that I like to look at productivity is over the four-year period of COVID. And where we are right now is productivity in the four years before COVID was 1.4 percent. Productivity in the four years since February 2020 was 1.6 percent. I think it’s basically on the path that it was before. That doesn’t mean it couldn’t get better. And for sure, the businesses I talked to are investing in labor automation technology. And you mentioned McDonald’s. I was in a Arby’s recently, and I noticed that the person at the checkout line was also doing the drive through, right? And so I think these guys are thinking about labor productivity in fundamentally different way, because the cost of entry level labor has come up quite significantly. And of course that’s going to lead to more technology, which can lead to more productivity. So I think there’s something out there. But you’ve also got to think on the other side. And, you know, when I talked to most businesses I ask, are you more productive today? Most of them can point to their factories and their operating processes and say, yes, you know, here I am, we’ve driven productivity. And you can’t find them in the numbers. And part of the reason you can’t find in the numbers is that they’re not including their cybersecurity team which used to be X and is now 30 times X and doesn’t show up in the factory productivity numbers. But it is part of the overall productivity of the U.S. economy. And so there’s a lot of stuff we’re doing that isn’t making us more productive — I mean, it might be making us better, but it’s not make us more productive. And so, you know, I do think companies are finding ways to get more productive, but there are offsets, there are offsets.
LIESMAN: Tom, I have 20 seconds left, and I’m going to get this question a lot, you’re a voter next year, there’s also a presidential election next year, how does that presidential election affect your making of policy?
BARKIN: Not all. And I mean, you guys would be reassured to be in the room because there’s no hint of politics in our conversation. If there are politics in the Fed, its hawks and doves, not Rs and Ds. And hawks and doves, as best I can tell, I don’t even know the political affiliation of many of my colleagues, but cross those boundaries. And, you know, a hawk isn’t somebody who just thinks higher rates are good, they’re somebody who wakes up in the morning worried about inflation. And a dove is somebody who wakes up in the morning worried that we’re going to do too much on inflation, therefore hurt employment. Those are very legitimate philosophical theories. You’re not dealing with a bunch of people who are in that game. And as I said before in terms of the non-partisan, getting in that game would be a major mistake.
LIESMAN: Tom, thank you so much for joining us. Really appreciate it.
BARKIN: No. Great to be with you.
