MNI: Smart To Take Our Time Before Cutting, Fed's Barkin Says
Richmond Fed President sees upside inflation risk and seeks more conviction before moving rates back to neutral.
Federal Reserve Bank of Richmond President Thomas Barkin said Thursday a strong U.S. economy affords the Fed time to see if disinflation stays on trend before lowering interest rates.
"No one wants inflation to reemerge. And given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down," he said in remarks prepared for the Economic Club of New York. "It is smart for us to take our time."
The U.S. economy could see a soft landing but Barkin also sees risk that de-globalization hinders deflation in goods while strong wage growth and the recent drop in interest rates maintain pressure on shelter and services prices. (See: MNI: US Shelter Inflation Cooldown Seen Limited in 2024)
Better consumer sentiment and people's willingness to dip into their savings could also influence inflation expectations, fueling a reacceleration of price growth, he said.
Recent data showing six-month and seven-month core inflation below target at 1.9% have been "remarkable," accompanied a 3.7% unemployment rate and impressive GDP growth to end 2023, he noted. Firms in his district have shifted away from recession talk and major consumer products manufacturers are reporting single-digit price increases, down from double digits a year ago, he said.
"It’s possible that we will return to the pre-pandemic economy pretty seamlessly. It is also possible that the landing might be somewhat bumpier, with continued inflation pressure or demand challenges that we will need to counteract."