MNI POLICY: Fed's Barkin: Consumers Strong as Investment Slows

By Greg Quinn

     OTTAWA (MNI) - Richmond Fed President Tom Barkin said it's unclear whether

an interest-rate cut is needed for a U.S. economy showing signs of healthy

consumer spending and weaker business investment. 

     "Consumers are still very much willing to spend. What we have seen is a

pretty meaningful step back in the metrics we look at for business investment,"

Barkin said Tuesday at the University of Ottawa. 

     In later comments to reporters, he said he didn't know if a rate cut was

needed this year and that "Fundamental growth is the thing I'm most focused on."

Monetary policy remains "modestly accommodative" he said.

     Here are other highlights from Barkin:

     - Barkin noted Fed officials dropped language about being patient at the

last meeting amid signs of trade tensions and slower growth in Europe and China,

referencing a speech earlier Tuesday by Chairman Jerome Powell. "I think the

quote he said was we are grappling with data that's still pretty good,

unemployment at 3.6%, but with a mood and a mindset that suggests that the

environment is fragile," Barkin said. "We just want to be ready to move if we

need to."

     - Some companies are preparing for trade conflicts to be long lasting. At

the same time, new tariffs may not lead to surging inflation because consumers

can adjust their purchases and retailers may pressure suppliers to avoid passing

on price increases, Barkin said. "To get to inflation over time, you'd have to

imagine it's constant and ratcheting."

     - Asked if the U.S. can "talk itself into a recession," Barkin said: "That

is a risk. I don't think we are doing it yet, but I do think one of the things

that I'm grappling with is the question of whether we will do that."

     - Barkin noted that "The way that would have to happen would be businesses

would decide not just to be cautious but to cut back, and if they chose to cut

back on investment, or cut back on employment, you could see consumers then

cutting back on consumption, and that's how one gets a recession. Again, that's

not where we are, but that is something I'm watching closely."

     - Inflation expectations are strongly anchored, Barkin said.

     - Barkin noted that part of his visit to Ottawa was to meet Bank of Canada

officials as the Fed reviews its policy toolkit. Some of the BOC's practices he

discussed included an inflation target set as a range, the fact there are

several measures of core prices and Canada's past decision to reject a

price-level target. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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