Fed’s Barkin Describes a ‘Low-Hire, Low-Fire’ Economy That Doesn’t Feel Great

Richmond Fed President Tom Barkin told a business audience in Greenville, South Carolina, this week that the United States has averaged 2.5 percent real GDP growth since 2023 despite the pandemic, supply-chain shortages, Russia’s invasion of Ukraine, conflicts in the Middle East, tariffs, and higher interest rates. He credited stout consumption, still nearly 70 percent of output, even though the University of Michigan’s consumer-sentiment gauge has recorded the three weakest monthly readings in its 70-plus-year history. Unemployment stood at 4.1 percent in July, marking 58 straight months at or below 4.5 percent, and headline figures point to a durable expansion. Barkin, however, described the underlying picture as more complicated.

Under the surface, labor demand is cooling. The latest jobs report showed a net loss of 23,000 positions, and only 37 percent of firms in The CFO Survey are hiring for new roles. Fewer than 6 percent are laying workers off, producing what Barkin called a “low-hire, low-fire environment.” Demographics compound the issue: net migration is projected to decline by 2.4 million people between 2024 and 2026, while just over one in five Americans are now 65 or older. Retirements have pushed the number of people leaving the labor force up by an average of almost 2 million a year over the past three years.

Companies are leaning on capital rather than labor. Real private non-residential fixed investment grew at a 9.5 percent annualized pace in the first half of 2026, well above the 5.8 percent average recorded in the decade before the pandemic, and a single week of announcements earlier this year promised nearly 700 billion dollars of artificial-intelligence spending. Second-quarter earnings climbed more than 30 percent overall, and more than 50 percent once Alphabet and Amazon are included, while corporate leverage remained below 2020 levels. Barkin argued, however, that the recent productivity burst largely reflects post-pandemic labor shortages that forced firms to run leaner, rather than AI investment alone.

Price pressures remain stubborn. Headline PCE inflation peaked at 7.2 percent in June 2022, cooled to the mid-to-low 2 percent range by early 2025, then re-accelerated to 3.7 percent in June 2026, with core PCE at 3.3 percent. Barkin repeated that “the FOMC has made clear that we are committed to doing so and that we have the tools we need” to bring inflation back to the 2 percent target, while acknowledging the path may require more tightening. He warned that unsettled tariff policy, Middle East conflict, and continued AI-related investment could keep inflation expectations elevated, and that additional support would likely need to come from the Fed if that occurs. Meanwhile, lower-income households are financing purchases “by living a little closer to the edge,” dipping into savings, trading down to private-label goods, and managing payments carefully.

Markets have noticed. On Thursday, gold touched an intraday high of 4,387 dollars per ounce, reflecting continued demand for hard assets amid persistent inflation concerns. With consumption increasingly debt-financed, labor pools shrinking, and investment concentrated in a narrow set of technology bets, several parts of the economy show signs of strain even as headline growth continues.