Inside the Room: What It's Really Like to Be a Fed President at Jackson Hole

An exclusive look at how Federal Reserve officials experience the world's most important central banking conference, from academic paper preparation to informal networking, through the eyes of Richmond Fed President Tom Barkin.

Key Takeaways

• Fed officials receive 60-page academic papers two weeks before Jackson Hole and conduct team briefings to prepare discussion questions
• Informal conversations with international central bankers provide crucial economic intelligence, like Germany's persistent 17% savings rate vs US 3.5%
• Barkin sees continued inflation risks from deglobalization, Middle East conflicts, and housing demand that could resurface with rate cuts
• The current "low hiring, low firing" labor market dynamic is unsustainable and must move in either direction within coming quarters
• Fed officials view monetary policy as "test and learn" rather than following predetermined paths, with conviction level determining speed of action
• Data consistency over recent months has increased confidence in both inflation disinflation and labor market cooling trends
• Business expectations about "normal" interest rates may be unrealistic, with many still thinking of 2021's 2.6% mortgage rates as baseline

Timeline Overview

• 00:00–08:30 — Jackson Hole Setting: Introduction to the Kansas City Fed's annual economic symposium, its academic conference structure, and limited media access to actual proceedings
• 08:30–18:15 — Conference Mechanics: Tom Barkin's seven-year attendance record, academic paper preparation process, team briefings, and his role as policy customer rather than academic challenger
• 18:15–28:45 — International Networking: Conversations with central bankers from Argentina and Germany, learning about different economic conditions like German savings rates and precautionary sentiment
• 28:45–38:20 — Current Economic Assessment: Consumer behavior shifts toward price sensitivity, business hiring patterns, and the unsustainable "low hiring, low firing" equilibrium
• 38:20–48:15 — Labor Market Dynamics: Discussion of unemployment rate increases driven by workforce expansion rather than job losses, and timing considerations for policy adjustment
• 48:15–58:30 — Policy Philosophy: "Test and learn" approach based on conviction levels, data dependency, and balancing dual mandate risks between inflation and employment
• 58:30–01:08:45 — Inflation Risk Assessment: Continued concerns about medium-term pressures from deglobalization, Middle East conflicts, and housing market dynamics
• 01:08:45–01:18:30 — Monetary Policy Lags: Alan Blinder's question about shortening policy transmission times, structural changes in mortgage markets, and normalization expectations
• 01:18:30–01:25:00 — Employment Expectations Theory: Discussion of how employment expectations might anchor labor market outcomes similar to inflation expectations

The Academic Conference Experience: Preparation and Participation

Jackson Hole operates as a serious academic conference where Fed officials come prepared to extract policy-relevant insights rather than engage in scholarly debate.

• Barkin describes receiving materials "about two weeks ago you know probably four 60-page papers appendices charts regressions all that stuff I read through them I my team also reads through room"
• The preparation process includes team briefings where "my economists will say I really like this paper here's something that you know somebody needs to ask this question because I think about it differently"
• Unlike academic participants who might challenge papers, Barkin approaches as a "customer" seeking "good ideas for policy" rather than sitting "in the front row" questioning methodology
• The format remains consistent across years: "the chair will give a speech they give a couple papers then you have dinner then they wake up the next morning they give a couple papers another Central Banker give a speech"
• Academic discussants provide valuable perspective since "it's almost never the same so you do get a little bit of this back and forth debate which is very helpful if you're trying to think as I do about how to make a make sense of policy"
• Papers focus specifically on "monetary policy topics so today they one of the papers was about the relation between inflation and unemployment and whether that's changed" providing direct policy relevance

International Intelligence Gathering: Learning from Global Peers

The informal networking aspects of Jackson Hole provide Fed officials with crucial intelligence about global economic conditions and policy approaches that inform US decision-making.

• Conversations with international central bankers reveal surprising economic divergences, such as Germany's savings rate remaining "still at 17" while the US rate "has come down to about three and a half"
• These differences prompt important analytical questions: "why are German consumers not spending the way American consumers are that's an interesting topic" with implications for understanding consumption behavior
• Barkin attributes German caution to geopolitical factors: "there's just a lot more precautionary feeling about uh the situation in Europe the risk versus the Ukraine and what's happening over there"
• The social safety net differences matter: "there's a whole social safety debt in Europe that doesn't exist here" yet Germans continue saving despite job security and pensions
• Global central banking practices have converged: "the whole practice of Central Banking has been I'd say globalized over the years and Central Bankers really do think about inflation targeting for example same ways"
• Economic performance varies dramatically: "the US economy has come through this unbelievably well the European economies have not" creating different policy challenges across regions

Current Economic Assessment: Consumer Behavior and Labor Markets

Barkin's ground-level business intelligence reveals fundamental shifts in consumer behavior and labor market dynamics that challenge conventional economic narratives.

• Consumer spending reflects price sensitivity rather than weakness: "consumers are still spending but they're choosing and the way I think about it is they now have the time to when they go into a store and they see something that's at a price they don't like to say I think I'm going to do something else"
• Business responses demonstrate pricing power limitations: "I talked to hotel chains that every room is booked but they can't raise price at all because the second they raise price people just won't buy it"
• Even fast food chains are adapting: "I talked to a fast food leader who's rolling out software actually to encourage their franchises not to raise prices anymore that's that's a counter Trend"
• Labor market dynamics show careful management: "when I'm talking to the bigger companies what they're telling me is you know I'm just kind of slowing down the hiring you know I'm going to let attrition work my Workforce down"
• The current equilibrium appears unstable: "people aren't hiring but they're not firing and that's just not a high likely sustainable outcome either demand will continue and people will start hiring again or you'll start to see layoffs"
• Labor supply expansion explains unemployment increases: "the last jobs report where unemployment went up from 4.1 to 4.3 you actually added jobs 114,000 jobs we just added 420,000 people to the workforce so the denominator got bigger"

Policy Philosophy: Test and Learn vs Predetermined Paths

Barkin articulates a "test and learn" approach to monetary policy that prioritizes data consistency and conviction levels over adherence to predetermined policy paths.

• Conviction determines policy speed: "to me the question is all conviction you know what are you convinced of yeah and the stronger your conviction then the more forcibly you move whether that's raising rates or lowering rates"
• Gradual approaches suit uncertain environments: "the more that you're in a test and learn world I think the more you say let's move gradually or deliberately or methodically whichever your favorite word is"
• Data consistency builds confidence: "I actually think the data has come in in a very consistent way on both sides of the Mandate over the last three or four months" including both inflation and employment trends
• Forward-looking policy requires long horizons: "when we make policy you're trying to make it for a year from now right because the lags of monetary policy you're trying to meet a year ago a year from now"
• Risk balancing guides decisions: "we've got risks on the inflation side still and we've got RIS on the unemployment side still and we've got either one of them could go in both ways"
• Historical precedent supports flexibility: "we started small and then you know we got convinced that inflation was not going away and you had to move faster so the more convinced you are the faster"

Persistent Inflation Risks: Beyond the Current Cycle

Despite market focus on potential rate cuts, Barkin identifies multiple medium-term inflation pressures that could challenge the Fed's 2% target achievement.

• Current inflation remains above target: "we're at 2 and a half% for the last 12 months our Target's two so while we're doing great at bringing it down from when it was once 7.1 core is still at 2 and a half%"
• Timeline challenges persist: "even the most optimistic forecast for the back half of this year don't believe it'll get to 2%" due to favorable base effects from the previous year
• Geopolitical risks loom: "we have a conflict in the Middle East that could spiral deglobalization is a very real risk and that means that the Imports of goods could be more expensive going forward"
• Housing market dynamics worry policymakers: "if rates are to start coming down um one of the things I worry about is that will spool up demand for people who've been waiting to buy a house till mortgage rates come down but there won't be any new houses built"
• Supply-demand imbalances could persist: "everyone who puts their house in the market is a buyer and a seller so you'd still have this excess of demand over Supply"
• Policy effectiveness requires vigilance: "good policy works against that if we do the right thing with rates we'll work against but that's why I just want to make sure I understand it and see it before I you know sort of declare Victory"

Structural Changes in Monetary Policy Transmission

Alan Blinder's question about shortening monetary policy lags highlighted how structural economic changes affect the Fed's policy tools and their effectiveness.

• Mortgage market changes have reduced policy transmission: "I think the number is in 2009 60% of this mortgages in this country were adjustable rate today it's 8%" limiting the direct impact of rate changes
• This raises fundamental questions: "how much of our policy the effectiveness of our policy tools is a given or how much could actually change over time as the economy changed"
• Rate cut expectations may be unrealistic: "when I talk to especially real estate developers about you know when rates are back to normal a lot of times the number they have in their head is what the rates were in April of 2021 which was you know mortgage rate of 2.6%"
• Yield curve dynamics complicate policy: "when we lower the short-term rate which is all we do it's not a given that the long rate is just going to come down a bunch more it might but it might not"
• Pent-up demand creates both opportunities and risks: "I actually think a large part of the economy is standing in Readiness for the rate reduction cycle to start" including businesses delaying capital spending
• Deflation expectations prove problematic: "there are plenty of people that think inflation coming down means that prices are going to return to like 2019 levels deflation which doesn't really seem realistic"

The Normalization Challenge: Defining Success

Defining what constitutes a "normal" or successful economic outcome proves challenging when both inflation and employment face structural changes and uncertain neutral rates.

• Theoretical perfection remains elusive: "in a perfect world in a theoretical world we would lower our rates down to the neutral rate our star and at that neutral rate uh we would neither be stimulating nor restricting the economy"
• Uncertainty dominates neutral rate estimates: "most of the sep estimates or that the neutral rate somewhere between 2 and a half and 3 and a half% that's for the the overnight rate the confidence interval when you get into the models would add another 100 basis points on either side"
• Perfect calibration appears impossible: "it's impossible to be perfect here and so we can spend lots and lots and lots of time trying to navigate between 1.9% inflation and two and 2.1"
• Economic dynamism requires constant adjustment: "the unemployment rate always seems to be moving in one dire it's these things are always moving and so you react to the economy you've got"
• Unemployment thresholds guide policy: "most people think the ustar the um neutral rate for or the um non inflation exciting rate of employment is about four four and a half somewhere in that range"
• Mandate balancing requires pragmatism: "if unemployment is 4.8% that's higher than I think most if not all of my colleagues assessment of what would be neutral and so that would be something you'd want to work against"

Employment Expectations: An Underexplored Policy Tool

The conversation revealed potential for "employment expectations" to anchor labor market outcomes similar to how inflation expectations influence price-setting behavior.

• Labor hoarding behavior persists due to past shortages: businesses maintain current staffing levels due to "residual concern about being caught short labor among businesses" from previous hiring difficulties
• Expectations could become self-fulfilling: if businesses believe unemployment will remain low, they may be slower to fire workers, which could indeed keep unemployment low
• This parallels inflation expectations theory: just as expecting higher inflation can create inflationary behavior, expecting tight labor markets might sustain employment levels
• The concept could provide policy guidance: Fed officials might benefit from discussing employment expectations alongside inflation expectations in their communications
• Historical precedent exists: "post 2020 where everyone was talking about Labor shortages and so they sort of manifested themselves" demonstrates how expectations can influence reality
• Policy implications remain unexplored: unlike inflation expectations which receive significant Fed attention, employment expectations lack similar analytical framework or communication strategy

Conclusion

Tom Barkin's insider perspective reveals Jackson Hole as both serious academic conference and crucial intelligence-gathering operation for Federal Reserve officials. The combination of rigorous paper preparation, structured academic discussions, and informal international networking provides Fed policymakers with insights unavailable through traditional channels.

Barkin's current economic assessment suggests a Fed approaching policy decisions with unusual humility, recognizing that recent economic performance has challenged traditional models and relationships. His "test and learn" philosophy reflects this uncertainty, emphasizing data consistency and conviction levels over predetermined policy paths.

Most significantly, his identification of persistent inflation risks and structural changes in monetary policy transmission suggests that the Fed's upcoming easing cycle may prove more complex than markets anticipate. The discussion of employment expectations as a potential policy tool parallel to inflation expectations offers a novel framework for understanding labor market dynamics that could influence future Fed communications and strategy.

Practical Implications

• For Financial Markets: Fed officials view current conditions as requiring ongoing assessment rather than predetermined easing paths, suggesting policy flexibility and potential surprises in either direction
• For Businesses: Expectations about "normal" interest rates returning to 2021 levels may prove unrealistic, requiring adjustments to capital planning and financing strategies
• For Housing Market Participants: Pent-up demand from rate-sensitive buyers could create renewed price pressures once mortgage rates decline, complicating affordability objectives
• For International Investors: Divergent global economic performance and savings behavior create opportunities for understanding relative monetary policy trajectories across regions
• For Policy Researchers: The concept of employment expectations anchoring labor market outcomes deserves investigation parallel to extensive inflation expectations research
• For Economic Forecasters: Structural changes in monetary policy transmission mechanisms may require updating models that assume historical relationships remain constant
• For Fed Watchers: Understanding the "test and learn" philosophy helps interpret Fed communications and decision-making processes beyond traditional policy reaction functions
• For Regional Economic Development: Federal Reserve district intelligence gathering through business contacts provides valuable insights for understanding local economic conditions and policy impacts