MNI: Barkin Sees Risk Of Higher Fed Rates Amid Sticky Prices
Richmond Fed chief says recent string of stronger-than-expected data is unsustainable.
Federal Reserve Bank of Richmond President Thomas Barkin said Friday some recent signals about a hot economy may be overstated and he favors a slower pace of interest-rate hikes than last year, while adding he's prepared to tighten even more if needed.
"It makes sense to move more deliberately than we did last year," he said, emphasizing data dependence in prepared remarks. "If I’m right and inflation persists, we can react by raising rates further."
"Returning prices to the stability of the last 30 years will likely take a lot more time and effort," said Barkin, who is not expecting inflation to return to target until 2025. "We have forecasted additional rate increases and the SEP has made clear that we don’t anticipate rate cuts this year."
"Inflation is likely past peak. But I think it will take time to return to target, and, as a consequence, believe we still have work to do." (See: MNI INTERVIEW: US Inflation Could Take Many Years To Reach 2%)
The FOMC raised interest rates by 25 bps last month and is expected to do so again in March, taking the fed funds rate target to 4.75%-5%. A few officials have floated the potential for a larger 50 bps move. (See: MNI INTERVIEW: Fed Could Hike Rates More Than Expected-Hoenig)
The recent string of stronger-than-expected data should be taken with a grain of salt because seasonality adjustments likely distorted true signals, he said.
"January data is telling a very different story. Consumer spending, job growth and inflation have all accelerated. Is January an aberration, or is the economy actually stronger than we had thought?" he said in a speech at a Stanford University event.
"I see the jump as real, but doubt that it is as large as portrayed, or is sustainable," he said, noting unseasonably warm weather across the US. "That likely has goosed spending. And it seems clear that the holiday season (with gift cards) has now stretched from two months to four months."
"But that said, the labor market is still quite tight. The unemployment rate is 3.4 percent, a 54-year low. Employers tell me they aren’t as desperate as they were a year ago, but it is still difficult to find workers."