Federal Reserve Bank of Richmond President, Tom Barkin, expressed his views on the current economic situation during his speech at the Montgomery County Chamber of Commerce on Aug. 3, 2023. Despite the repeated predictions of a recession, Barkin explained that these forecasts have been consistently delayed, emphasizing that while economic cycles are inevitable, it is the timing that is uncertain.
Barkin highlighted the resilience of the economy, noting the Federal Reserve’s efforts to combat inflation through an increase in rates by 525 basis points over the last 17 months. Despite these measures, GDP growth remains solid, at 2.4 percent in the second quarter. This growth can be attributed, in part, to consumer spending, bolstered by higher-income individuals and higher wages. The labor market remains robust, with the unemployment rate sitting at a historically low 3.6 percent. Throughout the year, nearly 1.7 million jobs have been added, along with 2 million people to the labor force.
The Fed’s action against inflation has raised concerns about a potential recession. However, Barkin asserts that even if a recession were to occur, it might be less severe this time due to the current labor market conditions. He noted that businesses have already prepared for a potential recession by slowing hiring, managing inventory levels, streamlining costs, and deferring investments. Consumers have also responded by tightening their belts.
Despite these concerns, there is still optimism that inflation could normalize in short order, averting additional economic trauma. Barkin emphasized that the Fed’s objective is to reduce inflation, not to cause a recession.
This narrative aligns with the anticipation for the July jobs report. Economists predict that the U.S. economy added 200,000 nonfarm payrolls last month, with the unemployment rate remaining steady at 3.6 percent. Wages are expected to have increased by 0.3 percent over the prior month and 4.2 percent year over year, according to Bloomberg estimates.
The release of the jobs report will provide more context on whether the Federal Reserve should proceed with another rate increase in September. Following the June jobs report, the Fed increased rates by 0.25 percent, with Fed Chair Jay Powell labeling the labor market as “very tight.” While job vacancies have declined so far this year, labor demand still considerably exceeds the supply of available workers. Market data from the CME Group suggests an 82 percent chance the Fed will hold rates steady next month.
The insights provided by Barkin and the anticipation for the July jobs report indicate a resilient economy with a high level of uncertainty. The Federal Reserve’s ability to balance inflation control and economic growth continues to be a delicate tightrope walk. However, the prevailing sentiment leans toward the possibility of a “soft landing” rather than a deep recession. Thus, the watchful eyes of economists, policy-makers, and market participants continue to stay focused on the Federal Reserve’s moves and the unfolding economic data.
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