MNI: Barr Says Fed Needs Continued Good Data Before Rate Cuts
Fed vice chair says January CPI data is a reminder path to 2% inflation will be bumpy.
Federal Reserve Governor Michael Barr on Wednesday said he's confident inflation is on a path to the central bank's 2% target, but more data is needed before interest rates can be lowered.
"As Chair Powell indicated in his most recent press conference, my FOMC colleagues and I are confident we are on a path to 2% inflation, but we need to see continued good data before we can begin the process of reducing the federal funds rate," Barr said in prepared remarks. "I fully support what he called a careful approach to considering policy normalization given current conditions."
"January’s report on consumer product index inflation is a reminder that the path back to 2% inflation may be a bumpy one," he said.
Given the limited historical experience with the growth and inflation dynamics currently faced, and no modern experience of emerging from a global pandemic, "we have yet another reason to proceed carefully, as we have been doing." (See: MNI INTERVIEW: Fed Could Cut As Early As June - Quarles)
SOUND AND RESILIENT
Barr, the top banking regulator and Fed vice chair for supervision, said the banking system remains sound and resilient, adding that "it is in much better shape than it was last spring." But he also acknowledged renewed stresses at regional banks, and that "there are a few pockets of risk that we continue to watch, including the pandemic’s persistent impact on office commercial real estate in certain central business districts."
Referring to New York Community Bancorp, Barr said: "A single bank missing its revenue expectations and increasing its provisioning does not change the fact that the overall banking system is strong, and we see no signs of liquidity problems across the system."
He also addressed the central bank's QT program and said the Fed is planning to begin in-depth discussions of balance sheet issues soon. It is important to closely monitor market conditions well before pressures emerge, he said at a National Association for Business Economics conference. (See MNI: Fed Could Soon Taper QT But Halt Further Off-Ex-Staffers)
"We are also watching for signs of frictions in the redistribution of reserves that may not be immediately evident in wholesale funding markets," Barr said. "These frictions could result from a variety of factors including the fact that smaller banks generally have a less diverse array of wholesale market funding options to tap when they need to bolster reserve positions."