MIDLAND, TEXAS—In the first luncheon of 2026 for the Permian Basin Petroleum Association, invited speaker Garrett Golding, Assistant Vice President for Energy Programs at the Federal Reserve Bank of Dallas, addressed the PBPA’s membership on Feb. 19 in the banquet hall of this city’s Petroleum Club. Golding share his insights drawn from his work at the intersection of energy and the economy. His analysis spanned oil and gas markets, geopolitics, and the energy transition, offering valuable perspective for industry leaders navigating today’s evolving economic and policy landscape.
What follows is the complete transcript of his remarks on this day:
Garrett Golding:
Garrett Golding
Thank you for that introduction. It’s an honor to be introduced by a cameo star of [the streaming series] Landman. [laughter] [PBPA President Ben Shepperd appeared on camera for a few seconds on the series.] [Then, to Ben:] Didn’t let you know that I knew about that beforehand. [To audience:] It is great to be here and thank you all for staying instead of going to NAPE this week. We’ve been here the last few days, meeting several of you and I’ll get more into the outreach – we’re going to be here in a minute – but it’s always great to be here in Midland.. Most important slide of the deck is a disclaimer that the views that are about to follow are my own and not necessarily that of the Dallas Fed or the Federal Reserve system. In other words, all that follows is my opinion, but it should be yours too. [laughter] So kind of to set the table on what we do and why I’m here. I describe each one of the Federal Reserve banks.
There’s 12 across the country, 12 districts, as listening posts for the economy. We operate a lot of ways kind of like little intelligence agencies in a certain way. And there’s a very distinct reason for this and how the Federal Reserve system was created a little over a hundred years ago to be an independent federated agency. And in these 12 reserve banks, we have people that you would expect to be doing the work that we all are familiar with. Economic research on labor, on inflation, on economic growth. But we also have among the 12 banks, there are specializations among all of them. And so Dallas Fed means the state of Texas, Southern New Mexico, Northern Louisiana. About two thirds of US energy production takes place in this district. Same thing, around the same lines of energy sector GDP comes from this district. The Dallas Fed takes point position on what’s happening in energy markets in the energy industry or the federal reserve system.
And what that actually looks like is the work that goes on here from the economists doing the research to the outreach that we do in my group really helps inform not just our bank president who is responsible for briefing the rest of the Fed at each Fed meeting on what’s happening in energy, but it also serves as a resource for the broader federal government and the federal reserve system. So when it comes to the outreach and research and how these two hands wash each other, the research, be it on energy markets or inflation and other economic indicators, if you focus only on the research and only on the data, it goes back to the cliche that it is driving by using the rear view mirror. And so the way that we try to marry that research and the hard work that goes on there is with the engagement that we have across the business community and community leaders across this district.
And so energy is a major component of what we do in Dallas. I’ve been here, as I mentioned, the past few days with my colleague, [name not intelligible] over here at the table who’s from our El Paso branch. She and her team are doing the same type of work face to face or teams to teams calls with different leaders across the district. And so we’ve been here the last few days meeting with many of you to help inform our views. So I have a picture here of the Dallas Fed Energy Advisory Council. They meet with our bank president throughout the year. Kaes Van’t HOf [CEO of Diamondback Energy] just joined this panel the end of last year. There’s been others from Midland – Tim Leach was a longtime member as well and very helpful to us. The Dallas Fed Energy Survey, which many of you are participating in, comes out every quarter.
We’ll have one here released at the end of March. We just launched the Center for Energy and the Economy, which will be the home of thought leadership on the academic research that occurs to Dallas Fed on energy. You can go to our website and find multiple articles that we write throughout the year of what’s happening in this space. I’ll get more into a conference that we’re hosting here later on in the talk, but all this to say that the one-on-one contact and network that we’ve developed with this sector is critical to informing our views here. We really invite, not only that we should be a resource for you, but really invite that two-way dialogue, any chance that we have. And on a personal note, just as a sixth generation Texan, the work that we do here, I’m very passionate about and I take it personally that we have informed policy and informed perspectives to make better policy for the country.
So fair warning, I’m not a real economist. I just play one on TV, and we’re going to go a little bit through just the high level indicators that are of most interest to us right now. So when we talk about inflation, as we’re all aware, it’s been well above the Fed’s 2% target since 2021. And there’s been a number of reasons for this and they’ve come in different waves of what has been driving inflation. And so some of our economists did a great blog post a few months ago that unpacked what is keeping inflation above target and we can unpack the different components of inflation of different products and different drivers. And what stuck out to them were these three things which we have continued to monitor and call out in presentations in the last few months. So starting on the left, we have core goods inflation.
And so what they have called out here in these charts is the pace of inflation that you would need to see in these different components for overall inflation to be 2%. And what we have with goods inflation is actually needs to be flat. It needs to be 0% for inflation overall to be closer to 2%. And so we’ve seen the big spike in 2021, 2022, that was driven by primarily by the supply chain disruptions that we had after COVID. But what’s been interesting over the last year or so is this measure is starting to creep back up again. And we can attribute a lot of this towards tariffs over the last year or so. Now that 0.3%, what we’re calling out here, basically means if inflation is 2.7, it means like without this core goods inflation reading, it should be 2.4%. So it’s not a huge impact, but it’s been noticeable.
And it’s also less than what we were expecting at the beginning of last year where we had announced tariff levels that were significantly higher than what actually got implemented over the next year or so. This is something we continue to monitor. There’s a big debate on how much more this has to go, how much longer it has to run, on how much this inflation starts to filter through to consumers. Another piece of this has been housing inflation, as most people are aware over the last several years, that has come back down back towards where it should be to be consistent with 2% inflation. That’s not saying that house prices have necessarily come down and become more affordable and there’s a whole insurance discussion that comes into this as well on overall affordability, but at least the pace of price increases has come back down towards a more manageable level over the last couple of months.
And then the one that has been very sticky for us is a mouthful. Non-housing core services inflation. So these are things like insurance. Anyone who’s had an insurance renewal over the last couple of years knows exactly what’s happening here and these premium increases getting higher. Same thing on other components like food away from home. So this has been something that has been very sticky and kept inflation a little bit higher than otherwise should be to be at that 2% rate. And it’s also things that are a little bit difficult to address from a monetary policy perspective as well. Moving on to the labor market, they’ve had a cooling in the jobs market over the last year especially. And I’m showing you here on job growth over the last 20 years, just how extremely high it was a few years ago versus towards where we are today.
And also a closer zoom in on the right, on not just the last few years, but also another metric that we call the break even rate. So the break even rate is the amount of jobs that you have to create each month in order for unemployment to not keep up, to keep unemployment steady. And so that factor, that metric changes depending on things like demographic shifts, things like immigration, any changes to the labor pool. And so even though we’re creating a lot fewer jobs each month now than we were a couple of years ago, we’re also only needing to create that many jobs to keep unemployment from rising higher. And that’s what that black line calls out. You can see how that trend of new jobs over the last several years has broadly followed that reading recently.
There’s been a lot of focus on this softening market and how many fewer jobs are being created today. And there’s a big debate there as well over, is this a job market that’s materially weakening, or is this just a natural progression of what we’re seeing in demographics and other changes out there? So this brings it home to the outlook for rates… So what I’m showing here is the Fed funds target rate here in black and then out in these red lines and dots, this is one visualization of what we call the dot plot. For any of the Fed watchers out there, every other Fed meeting, all the members of the open market committee, all the Fed members put out their projection for where they see interest rates heading. And because of these dynamics that I just described, some uncertainty on where, how healthy the job market is, uncertainty on the pathway of inflation going forward… We have a very wide [range] of views around the open market committee here on what is it going to be the appropriate level of interest rates over the next several years. And so it is generally heading lower back here in the median, but what’s important to call out is, you can see here in 2026 through 27, 28, just how wide the spread is and views among the different members of the Fed right now. Okay, we’re through it. So back to the oil markets piece and kind of how we’re thinking about this currently.
So for those of you who aren’t sentenced to being oil market analysts and have to count barrels like I was, what we look at generally speaking on a fundamental basis is quarterly balances and nothing really moves the needle for us until we see those supply and demand figures being in excess or in deficit of a million barrels a day or more in a forecast at least. So when we’re going into this year and all these agencies like IEA, EIA, even some of the investment banks, we’re seeing stock builds on the order of three to four million barrels a day for the first half of this year. That screams to us $40 oil if this really did come to fruition. And of course, as we all know, nearing the end of February now, we haven’t really, we had a little bit of a dip into the $50s, but we’ve had a much more stronger oil market than what we were expecting, the forecast we’re showing towards the end of last year.
And the best reasons that we can identify on this are starting to see more uncertainty and sanctions, and more uncertainty in sanctions and other sanctioned barrels getting tied up overseas. This has led to a little bit tighter physical market, best as we can tell than what the forecast we’re expecting. There’s also been some geopolitical risk premium over the last several weeks, especially, that’s kept prices a little bit higher, but it’s kind of hard to identify exactly what that price premium looks like. So trying to get a little bit more deeper into that, I don’t want to not talk about Iran and then we end up talking Iran over the weekend. So not that I know anything, but the best way I can just call this out is these charts that the EIA puts out about geopolitical risk and the volumes that are going to through the Strait of Hormuz…
What we’re looking at previously with the strikes that occurred with the B2 bombers last year, there’s been, for the last decade, all this is gaming among oil market analysts on what happens if we strike Iran and what is the reaction, how quickly can they shut down the Strait of Hormuz? How long would the blockage be? What would the impact be on not just oil markets, but the global economy as a result of this thing? And if you had gone on vacation on Friday before the B2s launched and then come back from vacation, the next Friday, you would have thought nothing ever happened. And I know this because I went on vacation the Friday before we struck Iran and by about Tuesday I decided I could probably close my laptop and go back to the beach. That was an astonishing scenario. Something that’s been built up for so long and then it ended up, nothing really happened.
And I think one reason you could attribute to that is in this chart that Iran closing the Strait of Hormuz cuts off 90% of their economy essentially through the amount of oil that they have to shift through the Strait to get to global markets.
I don’t know what’s about to happen here next. I do know that we have a third carrier group moving into the Mediterranean now that could be on station within the next week and this will be the largest buildup of naval assets we’ve had since the invasion of Iraq in 2003. So there’s some knocks on the door apparently happening as part of this negotiation right now and you know, who knows what the reaction would be this time from the Iranians, but I think there’s definitely risk being priced in here of at least the order of magnitude of their barrels being disrupted. And now it’s just a question of how much broader conflagration across the region does some conflict create as a result of this.
Turning back state side here and looking at US production and just the debate that has occurred over here, calling this title this Twilight of Shale, because this was a quote that was in the Dallas Fed Energy Survey last year and may have been somebody in this room, I don’t know, but one of the executives said the conditions are right for, we’re entering the twilight of shale based on oil prices and costs, tariffs, other things that are impacting the industry about this time last year. And I also kind of try to take a little bit of a longer term perspective on this discussion where it feels like sometimes we’ve been here before. In 2015 and 2020, when all the data pointed towards Permian production starting to roll over and decline, there was never any kind of real data we could point to that would suggest otherwise.
And we’re kind of in one of those moments right now, I feel, where the engineers always figure a way out. It’s always been a sucker’s bet to bet against the ingenuity of this industry for the last decade at least. And so whether or not it’s some unknown productivity increase that we could have or higher ultimate recovery from what we’re hearing from some of the larger companies and what they’re capable of doing or what they’re researching right now.
The other unspoken part of this is when you see $50 to $60 as a potential scenario here, a lot of people will point out, well, at that level you start to see decline in activity, but we would also suggest that if you do have a decline of activity in that 50 to 60 range, there’s a lot of companies that could enter terminal decline at that level and that’s something that they’re all going to want to avoid, which is going to keep production way stickier than some of the forecasts have. And this forecast is from EIA by the way.
So turning to the big topic right now that we’re spending a lot of time trying to understand, and as Ben alluded to, that’s in the news constantly, I’m showing what ERCOT has for their peak load forecast over the medium term. And ERCOT is forced to account for every single entity that has applied for interconnection requests. This was a policy change after 2021 that when it comes to load growth and the forecast out there, they have to throw in everything – they’re forced to by the legislature. And so this unadjusted forecast, which they showed here, when it initially came out about a year and a half ago, it caused quite an uproar among the people that look at this, and especially among a lot of legislators, I’m saying, how is this going to happen? There’s no way, and that’s absolutely right. There is no way that this happens on peak load throughout the summer going this high from a peak of 85,000 megawatts that we saw last year to over 200,000 in just 10 years is just not going to happen.
And so the way that they have adjusted this is try to look historically at, okay, we have this amount of large load entities like data centers in the pipeline and historically this is how many have actually been constructed. There is some attrition there. And I would argue it’s just getting larger, that attrition rate over the last couple of years. You have so many data center developers that are applying, that are purchasing land, applying for an interconnection request, and trying to sell that property to one of the hyper-scalers. And just by default, there’s a lot of those that are just not going to make it and not going to be purchased and there’s never going to be anything built there. One power exec we talked to, one of the hubs of data center construction, is in South Dallas County. One power executive we spoke with said about one out of 10 that exist on paper right now could actually be constructed in South Dallas by his estimate.
For reference, this adjusted forecast, ERCOT said it was around 48% of what they see on paper in the application process now, is what they see actually getting built. So the reason for why this is happening, you have to really squint on this, but the National Renewable Energy Lab creates these fantastic maps of data center locations in fiber optic locations throughout the country. And you can see the historic data center alley in Northern Virginia where it’s been for 30 years now, they have said no more on data center construction because of the amount of power generation that is already committed to those customers today, they just simply can’t take anymore. So initially, data center companies and hyper scalers were looking at fiber optic networks and where can we be closest to there for prioritizing latency? Then they started to, at least from the hyperscalers’ perspective, started prioritizing access to clean energy. And then they started to prioritize any electron or any molecule that they can get their hands on. And so that’s what’s shifted the discussion pretty measurably, especially in Texas over the last couple of years. And you can see how many of these bubbles there are throughout the state and in particular out here in West Texas where those white bubbles are showing the plan and that data center construction and the size by magnitude. It’s pretty significant out in this direction.
And just to go further into the uncertainty on this, this is on a national level of electricity consumption from data centers, from some very smart people out there. From the McKinsey’s and BCGs of the world, from Bloomberg New Energy Finance to the different agencies and think tanks like EPRI. And there is a fivefold difference in forecast by 2030 among these people on what they’re seeing on data center forecast, which if you had a fivefold difference in oil market forecast in just five years, you would be laughed out of the room. That just shows how new all of this is to a lot of people that follow this extremely closely.
I personally would fall on the lower half of where these forecasts lie, if I was capable of producing my own forecast. And that’s because a lot of these forecasts are not I think properly accommodating what is the realistic build out of power generation and perhaps more importantly transmission, to meet this demand. And I think some of these forecasts that are on the lower end of it generally calibrate this a little bit better for what’s possible from a new power capacity perspective. How this is impacting us locally in Texas, this chart is not quite as dramatic as it looks because these aren’t dollar values that we’re showing in the lines. This is indexed to 2020. Just to show how much different the growth is in construction contracts on data centers in Texas versus total construction and others like offices down here on the lower end of it. This has become a major driver of construction across the state.
And from a broader national perspective, we’re starting to see, to a very measurable extent, the impact of the data center build out on GDP growth in this country. And the second quarter of last year, what we can attribute to the data center build out between the physical structures, to the chip purchases, to the power generation aspect was about 40% of US GDP in the second quarter last year. That backed off considerably. The third quarter reading, which we got in December, but it’s pretty noticeable, which also begs the question, if we can’t build the power fast enough and the other infrastructure necessary, how much could GDP start to take a hit going forward if we just don’t have the capacity to meet the demand in the future? So this brings up ultimately, perhaps the most important piece of this, is how does this impact electricity prices and the consumer?
And what makes this difficult from a national perspective is this isn’t something like oil prices and gasoline prices, which are a little bit more liquid. And obviously there are regional variations, but not like what we have with electricity prices. We have myriad different system operators, public utility commissions, regulated, deregulated markets, and people end up paying much different prices for their electricity. And where we’re starting to see this become a major political issue has been in the east coast where this was a major factor in a couple of governor’s elections recently in some of these states where you’re seeing the price go up and to the right over the last couple of years. In California, it’s probably easier to point to say, “Oh, this is just California, all the green energy and all this kind of thing.” What’s actually driving a lot of the California price increases are the transmission cost.
The wildfires that have created so much destruction to the transmission infrastructure there and the transmission, the expense of the transmission, new transmission and distribution that has had to be constructed, is filtering directly back into consumer rates. The other side of this is Californians generally consume a lot less electricity due to their climate than what we have in Texas. So even though we have much lower prices, generally speaking, in California, our bills can generate higher monthly in households. But also, what’s also sticking out in this so far is how Texas electricity prices have not generally been affected by this whole trend so far. We appear to be doing a lot of things right on accommodating this growth and data center construction by demanding that they bring their own power either to fall back on for emergency use or when grid conditions get extremely tight, and it’s just a matter of trying to balance this going forward that will determine whether or not we end up in the same pathway as some of these other states.
So, in other words, this is a really great thing to have a conference on. So it’s time for anybody really to travel to Dallas here in a couple of weeks to pull out your phone and register for our conference that we’re calling Powering AI, where we’re bringing together not just the technology sector, but different parts of the energy value chain as well, to have this discussion on how are we actually going to power the AI revolution. What are the constraints to this, be it through the physical infrastructure, the steel on the ground, to the labor requirements, to the skilled labor requirements, to water use, and then we have different regulators coming there as well, our grid operators. So ERCOT, PJM, even senior advisor from the White House Energy Dominance Council will be on a panel as well. So we’re very excited for this. I’ve been planning this for since November.
It’s been a bit like planning my wedding. I haven’t told my wife it’s been like having a baby because I’m smarter than say that… [laughter]But we’re really excited about this event and hope some of you will be able to make it. And on that note, we have another QR code for you here. This will take you to a way to sign up for our mailing list for our energy survey if you’re not participating in it as well. And more importantly, this is also a survey on this particular event that our public affairs people know that you learned something from me that I was very entertaining and informative and you love to have speak here. So for the next couple of minutes, I’d love to answer any questions that you may have.
Could you speak just briefly about the US budget deficit, understanding that we’re about to see the entire is that as long as the economy grows, maybe it’s not a problem, but can you speak to what’s going on?
I can’t really. Fiscal issues are for Congress and we as an institution very much stay in our lane on monetary policy. I would echo or point you to the 60 minutes interview that Chair Powell had around a year ago or so. We spoke directly to this and said that this fiscal path is unsustainable. I think generally we agree with that and he went on further to say this isn’t something that we need or that we can necessarily fix in the near term or if that’s going to cause a major problem in the near term, but on the long term it’s not a sustainable path. I’m sorry? I don’t really know if I can answer that one either. The question was, what effect would Kevin Warsh have? And you know, I would say he carries a lot of respect across this community and we look forward to working with him… but I know that people are looking forward to his leadership and you know, it is one vote among a large group and they are forced to forge consensus on monetary policy decisions.
So we’re excited to see him take his post whenever that happens.
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