The Federal Reserve Bank of Richmond's President, Tom Barkin, recently addressed the Columbia Rotary Club, discussing the current state of the economy and his thoughts on its future trajectory.
Barkin noted that despite various challenges including higher interest rates, global conflicts, and banking turmoil, the economy ended 2023 in a robust position. He pointed out that headline inflation measured by the personal consumption expenditures (PCE) price index dropped to 2.6 percent by year-end, and economic growth was healthy at 3.4 percent. Unemployment also remained near historic lows.
However, Barkin expressed disappointment with early 2024 inflation data which showed a rise in quarter-over-quarter core PCE inflation to 3.7 percent annualized and headline inflation to 3.4 percent. Despite this setback, he stressed that this figure is nowhere near the 7.1 percent headline inflation seen in June 2022 but does serve as a reminder that there is still work to be done.
In terms of demand, Barkin highlighted its robustness with private domestic final purchases growing at 3.1 percent and an average creation of 246,000 jobs per month in 2024. Unemployment has been below four percent for 27 consecutive months — a first since the late '60s.
During his speech, Barkin shared four perspectives he frequently encounters when discussing the economy: optimists who expect continued health and declining inflation; demand pessimists who fear impending impacts of monetary policy and credit tightening; inflation pessimists who worry about pressures on prices due to economic strength; and Fed pessimists who fear that rates will remain too high for too long or normalize too quickly.
Barkin concluded his remarks by expressing optimism about the Federal Reserve's ability to manage any potential economic challenges ahead. He emphasized that while he does have concerns about demand and inflation, he believes in the Fed's capacity to respond effectively if necessary.
