MNI: Fed's Barr Says Can 'Proceed Carefully' On Rates

Federal Reserve officials can be patient in determining the extent of monetary policy tightness needed to bring inflation under control as the economy proves stronger than policymakers had foreseen, Fed Vice Chair for Supervision Michael Barr said Monday.

“Given how far we have come, we are now at a point where we can proceed carefully as we determine the extent of monetary policy restriction that is needed,” said Barr.

“In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals.”

He cited “a lot of progress” in the fight against inflation, saying the Fed’s aggressive hikes of 525 basis points in less than 1-½ years had helped keep inflation expectations contained despite the post-Covid surge in price pressures.

Barr said he sees improving chances of a soft landing but added the prospect of one cannot be taken for granted.

“While inflation has been moderating, incoming data on economic activity have shown considerably more resilience than I had expected,” he said. “I now see a higher probability than I did previously of the U.S. economy achieving a return to price stability without the degree of job losses that have typically accompanied significant monetary policy tightening cycles.”

“However, the historical record cautions that this outcome could be quite difficult to achieve,” he added.