Richmond Fed’s Tom Barkin on the Surprisingly Resilient…

PodcastOdd LotsTom BarkinAug 31

Barkin describes a solid but uneven economy, with strong consumer spending and AI-related investment alongside a healthy but not overheated labor market. He remains cautious on inflation, arguing that earlier disinflationary forces may have weakened and that tariffs, refunds, pricing power, and consumer conditions have uneven effects. The discussion also weighs AI’s uncertain productivity impact, infrastructure constraints, and the risk that housing supply will fail to keep pace with returning demand.

Economic Growth Inflation Consumer Spending Labor Market Artificial Intelligence Trade Policy

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Key Takeaways

The United States is entering a $700 billion AI, data-center, and energy construction cycle, but shortages of switchgear, transformers, and electricians are constraining capacity. The buildout is also reallocating construction away from office and multifamily projects and could raise construction and labor costs for other projects.

Data centers may generate tax revenue without creating enough permanent jobs to secure broad community support, while concerns about water use, appearance, and distrust of AI add to local opposition. This social resistance accompanies an infrastructure expansion that is already facing equipment and labor shortages.

Barkin describes the economy as solid, supported by consumer spending, strong AI-related business investment, low unemployment, and a stabilized labor market with low hiring and firing. He also says spending is being sustained partly by reduced savings and delayed payments, including auto-loan delinquencies and unpaid summer gas bills, leaving its durability dependent on healthy markets and continued employment.

Barkin argues that the current productivity boom mainly reflects automation, staffing, and process investments made during the 2022 labor shortage rather than a broad AI-driven surge, while AI is contributing to delayed hiring as employers test its capabilities. He says policymakers should not base decisions on an assumed productivity boom until they have greater confidence about AI's effects over the next one to three years.

GEO-POLITICS

Data-Center Backlash — Data centers can generate tax revenue without creating enough permanent jobs to build broad local support. Communities may also object to water use, their appearance, and distrust of AI.

“If you have a data center, they don't have very many employees. Yeah. So people don't really know data. So the data center thing is exactly what you described…”—

TECHNOLOGY

AI Infrastructure — The United States is entering a massive construction cycle for AI, data centers, and energy, with $700 billion announced in one week. Shortages of switchgear, transformers, and electricians are creating capacity constraints.

“Yeah. So it's been a monumental construction investment cycle. Yeah. 700,000,000,000 announced in 1 week, I think at the beginning of February alone…”—

ECONOMY

Economic Momentum — Barkin describes the economy as solid, citing accelerated consumer spending, strong AI-related business investment, a stabilized jobs market, and low unemployment. He says the labor market is healthy but not overheated, with low hiring and low firing.

“So the economy is solid. Think he said that. Yeah. And you can definitely see that. And the GDP numbers and the consumer spending numbers…”—

Inflation Unsettled — Barkin does not say inflation is definitively worsening, but says it remains unsatisfactory. He leaves the appropriate monetary-policy response unresolved.

“I'm not saying inflation is definitely headed in the wrong direction. It's just not in the right place.”—

Dissaving Supports Spending — Consumer spending is being supported by households borrowing from the future through reduced savings and delayed payments, including auto-loan delinquency and unpaid summer gas bills. Barkin says spending may continue while markets are healthy and people have jobs.

“So people are finding ways to effectively borrow from the future, savings rates down. And I think that's what's keeping the spending going…”—

FORECASTS

Housing Tightness — Barkin expects housing demand to return as households form and seek larger homes. If rental and single-family inventory does not keep up, he says prices will rise again.

“Oh, I think that's highly likely…”—

Warsh Speech And Economy

The hosts discuss Kevin Warsh’s hawkish Jackson Hole speech before Tom Barkin describes solid growth, resilient spending, and a healthy but not overheated labor market.

Consumer Spending Resilience

Barkin attributes continued consumption to post-pandemic wealth, strong employment, and consumers creatively borrowing from future income despite reduced savings.

AI Construction Bottlenecks

The discussion examines how data-center investment is straining electricians, transformers, and construction capacity while redirecting resources from housing and other projects.

Housing Supply Risks

Barkin expects housing demand to return as households expand, warning that weak construction could leave rental and single-family inventory insufficient and push prices higher.

Inflationary Forces Shift

Barkin argues that disinflationary forces from globalization, energy, demographics, and e-commerce may have weakened, leaving the economy more exposed to recurring shocks.

Fed Communication Debate

Barkin supports transparency but agrees excessive forward guidance can constrain policy, while defending internal forecasts and questioning whether the dot plot overwhelms the message.

Tariff Pass-Through Pressure

Manufacturers report uneven tariff effects: refunds support earnings, business-to-business firms pass costs through, and retailers serving lower-income consumers struggle to raise prices.

AI Productivity Uncertainty

Barkin says AI’s current productivity gains remain limited and its eventual effects on prices, employment, capital, and policy are too uncertain to forecast confidently.