Richmond Federal Reserve President Tom Barkin, speaking at Jackson Hole, reflected on Fed Chair Kevin Warsh's recent speech, noting that Warsh accurately depicted the economy as solid but with inflation not in the "right place." Barkin observed significant momentum in the economy, highlighted by strong GDP and consumer spending numbers. He pointed out that even with rising gas prices and economic uncertainty, consumer spending has accelerated, and business investment, driven by artificial intelligence, has nearly doubled historically. The job market is stable with low unemployment, indicating a healthy, though not "frothy," employment situation.
Barkin shared his working theory for the economy's surprising resilience, contrasting it with the period following the Great Recession. He suggests that consumers, having built up equity values and home values, possess a determination to spend. This is evident even among those with less wealth, who are finding "creative" ways to spend, such as borrowing from the future or shifting to private label goods and discount stores like Walmart. This continued spending is supported by healthy markets and stable employment, despite falling savings rates.
Another significant factor discussed was the impact of investment cycles, particularly the "chips cycle," with $700 billion announced in one week alone at the beginning of February. This has created high demand and short supply for essential components like transformers and electricians. While office building construction is down and multi-family starts are low, industrial construction is making a comeback. Barkin also highlighted that tariff refunds are significantly boosting earnings for companies that have received them. He emphasized that the "creative ways consumers are continuing to spend" through dis-saving and going into debt, while sometimes overlooked, is a critical driver of the economy that warrants more attention.
