MNI: Fed Can Keep Easing Tight Policy As Prices Slow- Barkin
MNI (LINTHICUM HEIGHTS, MD.) - Richmond President Tom Barkin said Friday the Federal Reserve has scope to continue easing monetary policy while finishing the job curbing inflation in a resilient economy.
"Inflation is not yet back to target, so we still have more work to do, but we don’t think we need to be nearly as restrictive as we once were to finish that job," Barkin said in the text of a speech at a Baltimore area bankers meet. "Were employment to falter or inflation to reemerge, we have the tools to respond."
The U.S. economy has shown remarkable strength in consumer spending, the labor market and a surprising burst of productivity in the last few years, Barkin said, putting it ahead of other major economies in reaching an almost unheard of soft landing after the earlier round of rate hikes. Consumers have also helped by resisting some price increases after a period of global shocks, he said.
Recent data has been strong including consumer spending that “shows no signs of slowing” and the job market looks set to remain fairly healthy, Barkin said. “A low hiring, low firing labor market is still a healthy one,” he said.
“A strong but choosier consumer, coupled with a better-valued, more productive workforce has landed the economy in a good place," he said.
MORE RISK ON INFLATION SIDE
The Fed on Dec. 18 lowered its policy rate by a quarter point to a range of 4.25% to 4.5%, the third straight reduction, and Chair Jerome Powell told reporters further relief will be more cautious amid signs of lingering inflation.
Market expectations and the Fed are more in line now than a year ago, Barkin said.
"At the long end of the curve, there seems to be increased understanding that rates are unlikely to come down as much as some might have hoped," he said. (See: MNI INTERVIEW: Fed Won't Consider Cuts Until March - Benigno)
The upbeat view is shaded somewhat by uncertainty around other potential domestic and global policy twists according to Barkin, noting the recent U.S. presidential election and threats of global tariffs. "Uncertainty should come down as policies are finalized, although it’s easy to imagine an extended period of back and forth," he said.
"I see more risk on the inflation side. Wage and product costs could see pressure. If they do, given recent experience with inflation, price-setters might have more courage to pass costs along."