WILLIAMSBURG — The Greater Williamsburg Chamber of Commerce learned about the role of the Fed and the state of the economy from President and CEO of the Federal Reserve Bank of Richmond Tom Barkin during the latest installment of its “Commonwealth Conversations” speaker series Wednesday morning at Williamsburg Lodge.
The conversation was led by the President and CEO of the Colonial Williamsburg Foundation, Cliff Fleet.
According to the Federal Reserve Bank of Richmond, Barkin serves as a voting member on the Fed’s chief monetary policy body, the Federal Open Market Committee, and is also responsible for bank supervision and the Federal Reserve’s technology organization. He is continually “on the ground” in the Fed’s Fifth District, it said, which covers South Carolina, North Carolina, Virginia, D.C., West Virginia and Maryland.
Among its many duties, Barking said the Fed’s most important role is “to preserve liquidity in times of trouble … think of it as a backstop.”
That said, what Barkin acknowledged the Fed is probably best known for is monetary policy and its congressional mandate of stable prices and maximum employment.
“We have a really, really big lever, which is interest rates. So we toggle the interest rates up and down with the intent of trying to maintain stable prices for this country,” he said. “If we’ve learned anything in the last three years, it’s how much we like stable prices, and how much we hate inflation. And so that’s a really important mission.”
Barkin added it is always trying to maintain maximum employment, noting it would be an easy task to get price growth down to zero, all that would be necessary would be to take interest rates up to a million, but that would not be good for employment.
When it came to its congressional mandate, the pandemic brought unique challenges, he said.
“We had to answer the question — what can you best do to support the economy through this perspective cliff that was in front of us?” he explained. “We did two or three things in March of 2020 that I think history will show were pretty helpful. One was interest rates, which we took down to zero, so that creates some economic support for the economy. A second is we put literally trillions of dollars into the economy to try to support financial markets … we basically provided the liquidity that was needed in the market that had seized up to get through.”
Barkin credited the stimulus packages for helping to do that, as well. He also said the Fed was probably a bit slow to recognize it was dealing with inflation when the economy started to open back up.
“When you get to the summer of 2021, what happened is the economy reopened. Vaccines have been deployed and successful and those of us who were locked in our homes decided it was time to buy Taylor Swift tickets, and the economy went crazy,” he said. “And, you know, 2020 hindsight, I’d say we were a little slow to recognize that was anything other than temporary but it went crazy and supply couldn’t keep up with it.”
To compensate, the Fed started raising interest rates, and Barkin said as a result we saw a squeeze in areas such as the real estate market.
“When you raise interest rates, what happens is pretty straightforward. Interest-sensitive sectors start to scale back, and so housing would be a good example,” he explained. “You will remember that two years ago, not only could you not find a house, you couldn’t even elbow aside the other people who were going in to visit the three houses that were on the market. The bids were coming in and $20, $30, $40,000 over list and there would be competition for that. So definitely some of the froth has been taken out of residential real estate. Same with commercial banks.”
But he felt interest rates were now trending down.
“We’re definitely not done yet, but I will say that if I had been here a year ago, and you’d said, how would you feel in a year if we had 2.6% headline inflation, and that came at a cost of 3.7% unemployment, I would have taken that,” he said.
Barkin said the pandemic had changed the landscape, noting that remote work was having a profound effect on some communities. He also cited the shortage of affordable housing and changes in the labor market — particularly a shortage of skilled labor.
While he saw a difficult job market for professionals, for example, there are more skilled labor opportunities than people to fill the jobs. Regarding housing, he said some areas are building quickly because of available land, but our region’s options were more limited, both geographically and by residents and governments that were more averse to growth.
But when asked how he felt about the American economy overall, Barkin did not hesitate in his answer.
“We are so much more healthy than the rest of the world, and it’s not even close,” he said. “There’s incredible vibrancy to this economy. We’ve benefited from the fact that 80% of what we buy is produced domestically. Central Europe has sclerosis … China, having been a competitor for a long time, is clearly struggling right now. You have a bunch of emerging market economies — India — that are doing very well, but yet nowhere near as advanced as we are, and the standard of living we live in is extraordinary.”
Noting the deficit, he said if he were asked, he would say the debts are not sustainable. But it is all sustainable, he added, as long as the rest of the world wants U.S. bonds. If they didn’t, that would be an issue, but he added, “what other bonds would you invest in? Would you invest in Chinese bonds, or French, U.K.? It’s actually hard to find what you’d invest in, that’s how much stronger our economy is than the rest of the world.”
The final installment of the current “Commonwealth Conversations” series is slated for May 1 with the guest to be announced. Single tickets are $55 for chamber members, $80 for nonmembers and include breakfast. Tables of eight reserved seats with a company logo are $500 for chamber members and $700 for nonmembers.
For more information, visit the Commonwealth Conversations webpage.
