A businessman’s perspective
Former McKinsey executive believes Federal Reserve has a ‘noble mission’
In Tom Barkin’s first weeks as president and CEO of the Federal Reserve Bank of Richmond, he became a voting member of the Federal Open Market Committee (FOMC), the powerful group that sets benchmark interest rates for the nation.
Barkin, formerly an Atlanta-based senior partner with the consulting firm McKinsey & Co., approached the January meeting as a challenge.
“You have to bring your ‘A’ game,” he says. “You have in the room 10 or 12 of the premier Ph.D. economists of the world, many of whom have studied and written and spoken on this topic for decades. You have experienced bank supervisors and experienced bankers who know their industry better than anybody. If you have pride and a competitive spirit, which I have, you want to contribute in a meaningful way.”
At his second FOMC meeting in March, Barkin joined the other voting members in unanimously raising the Fed’s benchmark interest rate target a quarter of a percentage point. The meeting was the first one led by Jerome Powell, who had succeeded Janet Yellen as Federal Reserve chairman in February.
“We go around the room and we talk about economics conditions and policy,” Barkin says. “We have the back-and-forth debate that you’d expect we would, and at the end we vote — alphabetically. I’m one of the first ones called. When you give your first vote and even the second vote — it sounds a little corny — but I actually felt something. Here I am deciding monetary policy for the most important economy in the world.”
Unlike many Fed officials, Barkin, 56, is not an economist or a banker, but he has extensive business and financial experience. During his 30-year career with McKinsey, he served as the company’s global chief financial officer, chief risk officer and a member of its board and operating committee.
The Tampa native studied economics as an undergraduate at Harvard, where he earned bachelor’s, MBA and law degrees.
In addition, Barkin was a member of the board of directors at the Federal Reserve Bank of Atlanta from 2009 to 2014, a crucial period during the nation’s recovery from the Great Recession. He served as the board’s chairman in 2013-14.
“While I was there, I did fall in love with the institution,” Barkin says. “Talented people, noble mission and, you know, from ‘09 to ‘14, I felt that the folks in leadership were saving our economy.”
Dennis P. Lockhart was president of the Atlanta Fed when Barkin was on the board. He describes Barkin as “very engaged and knowledgeable about monetary affairs — even-handed, calm and very thoughtful. He was a joy to work with.”
Lockhart encouraged Barkin to consider the Richmond Fed job when he was contacted by an executive recruiter. “This is a golden opportunity,” Lockhart says.
At the Richmond Fed, Barkin succeeded Jeffrey Lacker, who had been president for nearly 13 years. Expected to retire last October, Lacker abruptly resigned in April 2017 after admitting his involvement in the disclosure of internal Fed information to an analyst in 2012.
Barkin “has unique insights on many industries that drive our nation’s economy and employ millions of Americans — as well as a well-informed perspective on issues facing the Federal Reserve and our nation,” Margaret Lewis, the chair of the Richmond Fed’s board of directors, said in a statement in announcing his appointment in December.
The appointment disappointed vocal Fed critics who want more diversity in its leadership. In June, Raphael W. Bostic became the first African-American bank president in the Federal Reserve’s history as head of Atlanta Fed. Two women and an American of Indian descent currently lead three other Fed banks, according to the Wall Street Journal.
Since taking the job, Barkin has toured the Richmond Fed’s Fifth District, which serves Maryland, Virginia, North Carolina, South Carolina, the District of Columbia and most of West Virginia. Much of the area was in his service territory at McKinsey.
What he has found is a regional economy with many contrasts. “When you drive through small towns, you just don’t see jobs being created the way you do when you drive through Richmond,” he says.
Barkin believes that the Richmond Fed can play a role in improving local economies. “One of the things we have the ability to do here, which I’m really interested in, is to bring our research into the communities that we serve,” he says. “In my time in Atlanta, I spent a lot of time in civic efforts, involved in building the city. I have a lot of passion for that.”
In Atlanta, Barkin served on the executive committee of the Metro Atlanta Chamber of Commerce. He remains a member of the Emory University board of trustees.
An avid golfer and a sports fan, Barkin serves on the executive board of the United States Golf Association and roots for the Atlanta Braves and the Tampa Bay Buccaneers.
Barkin and his wife, Robyn, have a 21-year-old son who is in college and an 18-year-old daughter who is a high-school senior. He is commuting to Richmond from Atlanta until his daughter finishes high school.
In his spare time, “I love to read mostly nonfiction and biographies,” Barkin says. “My daughter teases me that I’ve read a book on every president, and she wonders who really cares about Chester A. Arthur. But I do.”
Virginia Business interviewed Barkin at his Richmond office on March 27. The following is an edited transcript. (Barkin stresses that his views do not necessarily reflect the views of the Federal Reserve Board of Governors, the Federal Open Market Committee or his colleagues.)
Virginia Business: What attracted you to this job?
Barkin: I had a 30-year career in consulting at McKinsey and loved every minute of it. We have mandatory retirement at age 60, and I had signed the papers on my retirement … But I wasn’t in the mood to play a lot of golf or read a lot of books. I wanted to do something. At the same time, I had been on the board of the Atlanta Fed. While I was there, I fell in love with the institution … I was an undergraduate in economics, so I was interested in the topic, and it’s an opportunity to give back … I got a call from a headhunter. I didn’t reach out, and I hadn’t really thought about it. Robyn and I talked about it … I entered the process and was lucky enough to be offered the job.
VB: What do you know about the economy in the Fifth District?
Barkin: I’m very committed to being out in the district. While I’ve been here for two and half months, I’ve already been to Charleston, Columbia, Charlotte, Greensboro, Winston-Salem, Raleigh, Durham, Norfolk, Richmond, Northern Virginia, D.C. and Baltimore… I’ve been meeting with various business, civic and community leaders … I’m trying to get an angle on where we are and how we’re doing … It’s an interesting district. The cities are very different. Baltimore and Charleston couldn’t be more different. Charlotte is actually more like Atlanta than a town like Richmond … While Northern Virginia isn’t a city, it’s probably the biggest economy in the district. The rural-urban [contrast] is an interesting topic that I’m digging into. I described to you eight or 10 cities, but in between those cities are a lot of folks, and honestly the employment performance, the labor participation of folks in the rural areas, is a lot different than it is in the city areas.
VB: Now tell me about your time with the Atlanta Fed. Did that prepare you for this job?
Barkin: First of all, I learned that the people in the Fed are really talented and committed and wake up every morning trying to do the right thing. I never worked in a governmentish agency before, and so getting the chance to learn that was a big confidence builder. It reawakened, for me, an interest in economics I had since I was in school … I had followed it and read about it, but I hadn’t been immersed in it … For a guy like me, who practiced economics in an amateur fashion, to be able to see people practice in a professional fashion was really very exciting. To that end, I have a big responsibility as a member of the FOMC, and [Richmond Fed economists] have been working very hard, and I’ve been working very hard, to make sure that I can deliver for the people and for this bank the perspectives that I think I was hired to do. I understood the organization and understood the system, but it would be way too arrogant to say I was prepared to deliver on monetary policy the way I expect myself to. That’s what I’ve been working on.
VB: As you know, there were some critics [who say] there ought to be more diversity in the high positions at the Fed. What are your thoughts about that?
Barkin: I think we ought to have more diversity at the Fed and, frankly, everywhere. I can’t speak to my own selection, but what I will say is that … the more different views you can bring into a problem, the better. It’s not the kind of diversity you are asking about, but I do think I’m bringing a different kind of diversity to the FOMC. I’m the only, let’s call it non-banker, businessperson there who comes from a managerial background. So, there are a set of questions we have on the table: Why isn’t inflation accelerating more? How much labor force participation is on the sidelines? … I think I can actually bring something that’s fundamentally additive to what others can bring. I’d like to think I bring that kind of diversity. What I can do … on the kind of diversity you are talking about is drive in our little slice of the world a real change in performance. By the way, we publish a diversity report every year. You’d be impressed by how diverse this bank actually is, but you don’t ever declare victory. Every one of the folks on my team and I are … talking about what can we do … to bring more diverse perspectives to bear on all dimensions. I don’t want to sound cocky, but I think we will clearly move the needle even more fully than where it is today.
VB: You’re in the unique position of having served under two different Fed chairs in your first three months on the job. How would you compare the two, Janet Yellen and Jerome Powell?
Barkin: That’s a tough question. I went to one meeting with Janet and one meeting with Jay, but I knew both of them before when I was on the [Atlanta Fed] board. The first thing I’d say is that they are a lot more similar than they are different. Both, as far as I can tell, have a commitment to creating on the FOMC a team of people with diverse points of view and to hear out those points of view. I think they both are incredibly talented and smart. The obvious difference is in background. She is a really sophisticated economist. He’s an incredibly accomplished investor … I was impressed back then of how well they worked together and in the transition on how well they continued to work together.
VB: How would you describe the condition of the U.S. economy currently?
Barkin: Here’s my take: The fundamentals of the economy feel extremely strong right now. GDP has grown at a very nice clip over the last several quarters, and, in most projections, this year [is expected to] continue at that strong clip. You’re getting fiscal stimulus, which is helpful. You also are getting stimulus from the health of the international economy … In that context, you have almost historically low unemployment at 4.1 percent [in March]. Most projections would take that down under 4 sometime this year. You have inflation, which has been for the last six months at 2 percent, and most projections would say that, by the time we get to June, we will be at 2 percent on a 12-month basis. Very strong GDP growth, very low unemployment and normal-target inflation. That’s about as healthy a set of three metrics as you’re going to get. If you take a 50-year look at the U.S. economy, you aren’t going to find many moments when it was as sweet as it seems to be now.
We do have questions on the growth side. How much stimulus will there be on the fiscal side? Some economists would say that fiscal stimulus at the time of full employment has less of a multiplier [effect] than other times. You have one-time shocks, whether they be intercountry conflict or trade or whatever. Growth looks good, but we are always looking at markets, looking at shocks. On unemployment, are we at full [employment] or is the somewhat historically low labor participation a sign that you have dry powder on the sidelines, people who are willing to come into the market? … On the inflation side, as tight as the labor markets are, we are not seeing the kind of inflation that you would expect. Is that just a delay in inflation that’s coming or is that a sign that the interaction between labor force tightness and price inflation has somehow been limited? That’s a question. You have seen from the chairman’s statements that we continue on a path to rates of normal levels. But, as we do that, how far do you go and how fast do you go? That’s still a question … I’ll just say — it’s really complicated.
VB: What about the tax cuts? Was this the right time to have federal tax cuts?
Barkin: I don’t know about the policy questions. What I do know is that tax cuts are stimulative, and so these [tax cuts] are interesting. Roughly half of it is personal tax cuts, and personal tax cuts, it’s pretty clear, stimulate the economy … The corporate tax cuts are also stimulative, but here we are in a little-less proven territory. We just don’t have as much research or as many experiences with this kind of corporate tax cut. It’s a complicated tax cut. The repatriation [of overseas profits] — what does that do or not do is unclear. [What people do with the savings from corporate tax cuts,] I think is very unclear. It’s one of the questions we are watching, how stimulative does this turn out to be? I’d say the other thing that we’re watching, which is also part of your question, is: What is the impact on fiscal health of the U.S.? There are debates about what kind of change will happen in tax receipts because of this tax cut. But, obviously, if you have a reduction in tax receipts not offset by a significant amount of stimulus, then you end up with a government debt challenge in the out-years. Which is, again, what makes it so interesting and complicated to parse how all that fits together.