Podcast
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Keeping Up on the Economy with Anna Kovner
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Anna Kovner, director of research at the Federal Reserve Bank of Richmond, reviews the significant, rapid changes in trade policy, immigration policy, and the size of the federal workforce in 2025. She also discusses how the Richmond Fed has assessed the economic impact of these changes through its research and outreach programs.
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Transcript
Tim Sablik: My guest today is Anna Kovner, executive vice president and director of research at the Richmond Fed. Anna, welcome back to the show.
Anna Kovner: I'm glad to be back.
Sablik: You were last with us a little over a year ago for our 150th episode in November 2024. A lot has happened over the past year, and I'm glad we could take the time to sit down and catch up on what you and the rest of the research team has been up to.
Let's start with the big picture. What were some of the developments in the economy that surprised you in 2025?
Kovner: Overall, I'd have to say I was most surprised by the magnitude of some of the economic policy changes that came to pass in 2025. I'd highlight here, in particular, tariffs and immigration.
First, looking at tariffs, by the end of 2025 we estimate effective tariff rates are reaching about 17 percent. That's the highest American tariff rates have been since 1935.
Second, I'd highlight immigration. 2025 saw one of the largest decreases in net immigration to the United States. If you take a step back, the U.S. has more immigrants or foreign-born residents than any other country. In 2024, this was about 50 million people, almost 15 percent of the population. That had been a high last reached in the 1890s, which is probably when some of my great-grandparents arrived in the United States. Two years ago, we were surprised by the numbers of immigrants that we were adding to the U.S. workforce. In 2025, that completely reversed. That means we're going to go from a workforce growth of more than 1 percent a year ago to maybe less than a half a percent in 2026.
And then, of course, I'd mention in our district, the magnitude of the changes to the federal workforce has been large.
If you take a step back, each of these economic policy changes is really big relative to the types of changes we've seen in the last decade or so from the federal government. Immigration and making the federal government more efficient, in particular, are actually kind of perennial topics of different administrations that have been talked about a lot, but where we hadn't really previously seen actions with this scale of impact.
Sablik: In light of all those substantial changes, how did the research team in Richmond focus itself over the last year?
Kovner: As you can imagine from the size of those changes, it's been thinking about the impact of those policy changes on the U.S. economy.
For tariffs, there was a lot of research that was done in the economics profession in 2018 [and] 2019 when there were initial tariffs imposed. And so, if I think about things that surprised me, it's not just the scale of the tariffs, but I've actually been surprised that the economy has weathered the tariff impact so well. Of course, the U.S. is a relatively closed economy relative to open economies that you see in Europe, imports overall are maybe 14 percent of GDP, and, of course, we spend a lot on services which aren't really tariffed.
It's not to discount their impact, but we've seen remarkably strong economic growth in the past year, despite what have been changes of an exceptional magnitude. We often assume that things are going to have a nonlinear response when you extrapolate from a small change to a large change, and so we've really been doing a lot to think about that over the course of the year. Marina Azzimonti, in particular, did some interesting work. One of the things we tried to focus on is mapping tariffed industries to states so you can also look at the affected industries of tariffs and how that varies with the region.
That work was really new in 2025. We have a much longer history of thinking about immigration here at the Richmond Fed. In addition to asking questions about the impact on the aggregate U.S. labor force numbers, Nico Morales has been looking at immigration and its impact with very interesting work looking at the impact of high-skill immigrants, both in places where those immigrants are going and the places that they're leaving.
When you think about the work we've done in 2025, those two things were really responses to the policy changes, staying on top of changes to the economy. But we continue our work to understand inflation. Since the pandemic, Alex Wolman has been looking at the pattern of price changes in different sub-categories of inflation. Paul Ho has done really interesting work with our visiting scholar, Mark Watson, thinking again about taking sub-categories of inflation data and how to smooth the noise in the data to estimate a trend, taking advantage of extra information on subsectors. Unfortunately, we continue to estimate trend inflation leveling off above our 2 percent target.
Sablik: Yeah, lots of interesting work. Many of those researchers have been guests on the show last year talking about that work, so we'll include some links to those past episodes for folks that want to check that out.
One of the big challenges that economists in general had to contend with last year was the suspension of data collection and reporting during the federal government shutdown in the fall. How did your team adapt, and what did you learn from that experience?
Kovner: In my early career, I used to work on Wall Street as an investor. Sometimes when my friends said, "What's it like to work at the Fed? How do you like that? What's different?" I used to say to those people, "Oh, well, we don't have emergencies in economics." We know when the data come out. We don't suddenly get, as you might in financial markets, sudden, sharp economic data releases at unusual times. I guess that was not the case in 2025.
The BLS, the Bureau of Labor Statistics, data are a gold standard in terms of high-quality data. That's because they have a really long time series of that data, but also because we can use that data to break it down into smaller parts by geography, by education.
At first, I'll be honest, we waited. We run a ton of models off this data, and you really can't substitute for that automated input at that level of detail. But, of course, when it became clear this was going to be more than a short period without data and that there was going to be an FOMC meeting, we kicked it into high gear. We learned a lot about new data sources, starting in the pandemic when we were really looking to understand different things about the economy. We were able to bring some of that into play here.
If I think about the type of data we're getting and didn't have access to, I would split it into two parts: employment data and price data. There's a ton of interesting sources for employment data. When we think about measures of maximum employment — one of our targets — that's not something anchored in a particular federal government statistic.
We've long been very interested in understanding all the elements of employment. We've been getting information from ADP, which is payroll data. They're even doing a weekly series now. There has been new data that came out of places like Revelio, which draws in data from LinkedIn. QuickBooks has a lot of interesting data from small businesses. Each of those sources are things we'd also been looking at so we could understand different parts of the labor market, so we were able to draw on some of that. And, of course, we continued to have data from state unemployment claims, which I've always liked because it's a very clean measure of the number of people out of work and that we have a long time series from, [so] it doesn't have some of the challenges we see in survey data.
In contrast, we got a lot more limited information on prices. We did discover new things in the process of thinking about this data that I think we'll continue to work on in 2026. For example, our Richmond Fed business survey is one of few of the regional bank surveys that explicitly asks businesses about their numeric plans for changing prices. That data can be used to inform nowcasts of inflation and maybe give us a useful early read on PCE data. Every so often, we'll have an FOMC meeting before we get the PCE reading, and we're always looking for that because if we have a 2 percent target, that's based on a very specific metric.
I think we're still learning from this episode of not having the data, though. We're still learning a lot about that sausage making process of the data because the BLS didn't really have the chance to run its full data collection process. So, we're even doing some work right now to understand the most recent readings, not all of which were informed by the full time series of the process.
Sablik: Yeah, really interesting, and a lot of good lessons that will continue to be useful into the future. Were there any other big achievements or changes that teams approached last year that you wanted to highlight?
Kovner: One thing that I'm really excited about that we did in 2025 is we formalized the work that we've been doing to understand small towns in rural areas by launching a Center for Rural Economies. This highlights a key area of focus for us in terms of being a thought leader on questions related to less densely populated geographies. I would highlight the excitement of building that center as a way in which we'll really be able to publicize the work that we're doing. It comes along with new initiatives like a webcast about the challenges you might face in a less densely populated place.
One of the things we try to do in that work, in general, is exemplified by our Investing in Rural America conference. We had the theme last year about understanding what works, elevating what works. We think one of the opportunities here is sharing across rural and small towns the information about how some of those places are enhancing their access to economic development.
Sablik: We had Daniel Davis on the show last fall to talk about the launch of that center, so we'll include a link to that one as well.
When we last spoke as I mentioned in November of 2024, you had been director of research in Richmond for about six months. So now, it's a year and a half on the job. What have you learned since that time?
Kovner: Well, one thing I learned is how much it takes to move into a new house and finish furnishing it.
But more seriously, Richmond has always led in bringing insights from business outreach to our consideration of the forces shaping the U.S. economy. After a year in the job, I've gotten a really in-depth understanding of how we systematically collect that information and use it to gain insights.
One of the things I've been thinking about is how we can take that interesting analysis and insight we're doing internally and make it more accessible to the public. In 2025, those business insights have been particularly important when so many things have been changing. Economic data are inherently backward looking, so I've really learned a lot about how we can use our outreach — both in surveys and in the qualitative conversations we're having — to combine with the historical data that we have to get a better understanding of what we expect to happen going forward.
Sablik: Based on those things that you learned, are there things that you want to do differently in 2026?
Kovner: When I think about some of the lessons I have from 2025, it's less about things I want to do differently or the same.
As a leader and a manager, the key thing that we have is our people. We have this team of really talented researchers collecting data and doing analysis. So, how are we nimble at applying the information that we have and the unique perspectives to the questions of the day? How do we get people excited to come into work every day to answer key policy questions with the data that we have available? That's not something that would be different. That's what we're always trying to do.
One of the things you learn when you're surprised by all these big changes is how quickly you can mobilize and thinking about making sure we institutionalize those lessons.
Sablik: We're sitting here talking in early January and, of course, we don't know how 2026 is going to evolve over the next 12 months, but what are some of the research priorities that you have for Richmond in the new year?
Kovner: I'll talk about a few things.
We really have a concentration in our work in three main areas, and so I think we'll be laser focused on that work. First, how do we draw information from Main Street businesses, small and large, to get insights on what's going to happen to the U.S. economy? Second is thinking about workforce pathways, in particular our work that surveys community colleges and thinking more systematically about questions around non-four-year college graduates, both in terms of the supply and training programs for those folks and also what the demand for that type of labor would be. And, continuing the work on rural and small towns.
If you take a step back to things that are more timely, we're going to be looking a lot at questions around maximum employment, the impact of longer-term trends in the U.S. labor force, and changes in labor force participation. As the economy evolves, we've seen a lot of evidence consistent with increasing productivity. One thing I've been thinking a lot about is if this is going to be a jobless boom, how do we think about this structural evolution of the economy, which, of course, is very different than cyclical forces that we think monetary policy is the most effective tool for.
And, we'll be continuing our work on the inflation front where we continue to track its evolution. We'll be checking to see that we don't see evidence of tariff-related price changes reigniting inflation, and that the slow and bumpy process of disinflation continues.
Finally, in 2026 more narrowly, we'll be looking to see what the impact has been of the 175 basis points in rate reductions as well as the fiscal stimulus on the U.S. economy.
Sablik: Anna, thank you so much for joining me today.
