MNI 5 THINGS: Fed's Barkin Sees Rising Rates, Infl At Target

--"Hard To Argue" For Continued Accommodative Policy, Barkin Says in 1st Public

Remarks

By Sara Haire

     WASHINGTON (MNI) - At his first public speaking appearance since his

appointment to the helm of the Federal Reserve Bank of Richmond, Thomas Barkin

painted an overwhelmingly positive picture of the economy and made a case for

rising interest rates. Here are five highlights of his remarks at George Mason

University at Fairfax, Va. on Monday. Barkin votes on the rate-setting Federal

Open Market Committee this year. 

     - It is "hard to argue" that an accommodative policy remains appropriate

given that the economy is "remarkably strong," Barkin said, citing above trend

economic growth, unemployment levels at lows not seen since 2000, record

breaking measures of consumer and business confidence, and inflation having now

reached the Fed's target as reasons to continue raising interest rates. Given

this environment, Barkin said he sees rates moving towards neutral but will

continue to be committed to "stepping on the brake" when needed. He refused to

say whether he sees two or three more hikes in the year as he reiterated that

underlying growth will continue to be watched.

     - Barkin acknowledged that March's 1.9% rise in the core PCE price index

implied that inflation is now "effectively at" the Fed's symmetric target of 2%.

He reiterated that while inflation is stable for now, Fed officials will

continue watching it closely. 

     - Barkin noted that despite the low unemployment rate, he does not see

outsized wage pressure. Firms report exploring alternatives to paying higher

wages and say that attrition rates have not risen so high as to alarm them into

raising wages significantly. He noted that while his view of the Phillips Curve

relationship between a tight labor market and higher overall price levels is "in

flux," he said he believes the relationship holds over the long run. In the

short run, however, market forces may render the Phillips Curve "relatively

flat" as prices are "a little stickier" than the relationship would suggest.  

     - The Fed has chalked up the softness in consumer spending as being due to

transitory factors and Barkin echoed that sentiment today. Consumer and business

confidence is "unbelievably positive," he said, in large part due to the tax

cuts and the omnibus bill as well as market returns. While the tax cuts are

clearly stimulative for consumers, Barkin said that their effect on business

investment might not be seen until next year. He noted that threatened trade

tariffs pose the biggest risk to business confidence, as firms turned from

practically "euphoric" in January to worried. However, he did note that there

has been no scaling back within his district, only uncertainty about the future.

     - In discussing the Fed's longer run monetary policy framework, Barkin said

the FOMC has yet to determine a terminal size for its balance sheet though the

committee is "reasonably comfortable" with the measured path for the wind-down.

He added that he was "intrigued" by the notion of having a target inflation

range, as opposed to a point target. He said he was "not a fan of false

precision," and that his "mind is open" as the Fed will begin having that debate

in the next few years.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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