Summary of Richmond Fed’s Tom Barkin on the Surprisingly Resilient Real Economy

Overview of Richmond Fed’s Tom Barkin on the Surprisingly Resilient Real Economy

In this Odd Lots conversation from Jackson Hole, Richmond Fed President Tom Barkin discusses why the U.S. economy remains surprisingly resilient despite sticky inflation, higher prices, tariff pressures, and ongoing uncertainty. Barkin argues that consumers are still spending by “borrowing from the future,” businesses are reshaping investment around AI and data centers, and the Fed is navigating a world where inflationary shocks appear more frequent than they were a decade ago.

Key Themes

The real economy is holding up better than expected

• Barkin describes the U.S. economy as “solid,” with:
  • strong GDP and consumer spending
  • a stable labor market
  • business investment boosted by AI-related spending
• He says the economy has clear momentum, even with gas-price increases and policy uncertainty.

Consumers are finding ways to keep spending

Barkin’s most notable point is that household spending remains resilient because consumers are adapting creatively:

• drawing down savings
• delaying bills
• living with family to reduce rent
• using private-label brands and discount retailers
• staying current enough on debts to avoid severe delinquencies

His view: as long as people have jobs and financial markets remain healthy, they will keep finding ways to spend.

AI is affecting the economy mostly through investment and hiring caution

• Barkin says the biggest immediate impact of AI is not yet a productivity boom, but a surge in construction and capital spending.
• Data centers and related infrastructure are driving strong demand for:
  • electricians
  • transformers
  • switchgear
  • construction labor
• AI is also influencing hiring decisions, with some firms using AI as a first pass before adding headcount.

Inflation, Policy, and the Fed

Inflation is better than it was, but still not where it should be

• Barkin says inflation has improved from its peak but is still “not in the right place.”
• He rejects the idea that inflation is clearly headed back up in a straight line, but agrees that the environment remains inflationary.

Forward guidance is useful — and dangerous

Barkin tries to hold two ideas at once:

• the Fed should be transparent because it builds credibility and helps markets
• too much forward guidance can box the Fed into bad decisions

He says the Fed’s experience in 2021–2022 showed the risks of being too committed to a path.

The dot plot and SEP should be reconsidered

• Barkin supports the SEP process internally because it sharpens policy debates.
• But he worries the dot plot oversimplifies the story and causes markets and the public to misread it as a promise rather than a forecast.

He doesn’t take a strong view on the next meeting

• Barkin emphasizes that comments about the economy should not be read as direct guidance for September or any specific meeting.
• He resists trying to convert economic commentary into a policy signal.

Tariffs and Pass-Through

Tariffs are still affecting businesses, but unevenly

• Barkin says tariff effects differ by sector:
  • steel and aluminum producers have benefited from a price umbrella
  • foreign manufacturers assembling products in the U.S. still feel the pain
• He notes that some firms are receiving refunds, which improves earnings and can support investment and hiring.

Consumer pass-through depends on the customer base

• B2B firms say they can pass tariff costs through.
• B2C firms have a harder time, especially if they sell to lower- and middle-income households.
• Big-box retailers are especially resistant to price increases and are helping hold the line on inflation.

Housing and Inflation Outlook

Housing may look soft now, but Barkin expects demand to return

• He thinks housing demand is likely to reappear as:
  • households grow
  • families need larger homes
  • inventories remain limited
• That could eventually push prices higher again.

Inflation may be structurally more volatile than in the 2010s

Barkin argues that the 2010s were unusually disinflationary because of:

• fracking
• favorable demographics
• globalization
• e-commerce
• abundant labor supply

He suggests the next decade may be more inflation-prone because more recent shocks and structural forces are pushing in the opposite direction.

Data Centers, Community Pushback, and Politics

Data centers are politically visible, even if they employ few people

• Barkin says communities often see data centers as:
  • tax-base positive
  • water-intensive
  • visually intrusive
  • politically controversial
• Unlike a factory, they don’t create many local jobs, so residents don’t feel the same community connection.

Their macro impact is real, but hard to forecast

• Barkin says the Fed may be under- or overestimating the scale of the AI/data center buildout.
• He sees both upside and risk:
  • it could boost growth and productivity
  • or crowd out other investment and add inflationary pressure
• He says the Fed should not base policy on uncertain assumptions about AI’s future impact.

Main Takeaways

• The U.S. economy remains surprisingly resilient, powered by consumer ingenuity, labor-market stability, and heavy AI-related investment.
• Inflation is still above target, and Barkin thinks the Fed must remain vigilant.
• Data centers and AI are reshaping construction, hiring, and local politics more than they are producing immediate productivity gains.
• Tariffs are creating uneven pressures, with pass-through easier in B2B than in consumer-facing businesses.
• Barkin favors transparency and internal debate at the Fed, but warns against over-relying on forward guidance or the dot plot.

Notable Insight

Consumers are not just spending because they feel rich — they’re spending because they are finding ways to fund spending today, even if it means borrowing from tomorrow.

Bottom Line

Tom Barkin’s message is that the economy is stronger, more adaptable, and more inflation-prone than many expect. The challenge for the Fed is not just reading the current data, but understanding how AI, tariffs, housing, and consumer behavior are reshaping the underlying economy in real time.