Economic cross-currents, political headwinds, and an elevated gold price framed Federal Reserve Bank of Richmond President Tom Barkin’s August 12 remarks to The Health Management Academy in Chicago. Barkin told the Four Seasons crowd that U.S. real GDP expanded at just 1.2 percent during the first half of 2025, less than half last year’s 2.5 percent clip. Payroll momentum has faded as well: the three-month average gain in non-farm jobs has slid to 35,000 compared with roughly 127,000 earlier this spring. With twelve-month core inflation still running at 2.8 percent—well above the Fed’s 2 percent objective—Barkin warned that “if the ride ahead proves bumpy … fasten your seatbelts.”
The Fed official pointed to a “low-hiring, low-firing” labor market, noting unemployment remains historically modest at 4.2 percent. Yet cracks are appearing beneath the headline numbers. Real consumer spending—which drives nearly 70 percent of GDP—has “all but stalled,” Barkin conceded. Consumers, once “flush with cash” in 2022, are now merely “stretched,” a shift that should temper companies’ ability to pass higher costs along. Those costs are rising: the average U.S. tariff rate now exceeds 17 percent, and customs-duty collections equal “nearly 9 percent,” squeezing business margins at a moment when wage gains have only recently outpaced prices.
Barkin argued that the squeeze may not translate into an outright recession. Rising real paychecks, lofty asset values, and the still-tight labor market make “a sustained consumer pullback” unlikely, he said. Even so, he cautioned that steeper tariffs could encourage firms to adopt labor-saving technologies, such as artificial intelligence, and eventually trim payrolls. Contributing to the tight labor backdrop, net immigration has fallen by about two million people a year, while the number of Americans over 65 and out of the workforce is climbing by roughly 1.3 million annually—structural forces that limit labor-supply growth and keep upward pressure on wages and, potentially, prices.
Monetary policy, Barkin insisted, is “well positioned” after the Federal Open Market Committee (FOMC) left the federal-funds rate unchanged in July. That pause, however, leaves the policy rate below prevailing core inflation, an arrangement that historically spells persistent currency debasement rather than price stability.
Still, Barkin struck a cautiously hopeful note, saying businesses are finally willing to invest because “it’s really hard to drive when it’s foggy,” but “the fog is lifting” thanks to a fresh tax bill, deregulation, and progress on tariff talks. Whether clarity or storm clouds arrive first remains to be seen.
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