Free Trial

REPEAT:MNI 5 THINGS:Fed Barkin Sees Rising Rates,Infl At Goal

Repeats Story Initially Transmitted at 23:30 GMT May 7/19:30 EST May 7
--"Hard To Argue" For Continued Accommodative Policy, Barkin Says in 1st Public
Remarks
By Sara Haire
     WASHINGTON (MNI) - At his first public speaking appearance since his
appointment to the helm of the Federal Reserve Bank of Richmond, Thomas Barkin
painted an overwhelmingly positive picture of the economy and made a case for
rising interest rates. Here are five highlights of his remarks at George Mason
University at Fairfax, Va. on Monday. Barkin votes on the rate-setting Federal
Open Market Committee this year. 
     - It is "hard to argue" that an accommodative policy remains appropriate
given that the economy is "remarkably strong," Barkin said, citing above trend
economic growth, unemployment levels at lows not seen since 2000, record
breaking measures of consumer and business confidence, and inflation having now
reached the Fed's target as reasons to continue raising interest rates. Given
this environment, Barkin said he sees rates moving towards neutral but will
continue to be committed to "stepping on the brake" when needed. He refused to
say whether he sees two or three more hikes in the year as he reiterated that
underlying growth will continue to be watched.
     - Barkin acknowledged that March's 1.9% rise in the core PCE price index
implied that inflation is now "effectively at" the Fed's symmetric target of 2%.
He reiterated that while inflation is stable for now, Fed officials will
continue watching it closely. 
     - Barkin noted that despite the low unemployment rate, he does not see
outsized wage pressure. Firms report exploring alternatives to paying higher
wages and say that attrition rates have not risen so high as to alarm them into
raising wages significantly. He noted that while his view of the Phillips Curve
relationship between a tight labor market and higher overall price levels is "in
flux," he said he believes the relationship holds over the long run. In the
short run, however, market forces may render the Phillips Curve "relatively
flat" as prices are "a little stickier" than the relationship would suggest.  
     - The Fed has chalked up the softness in consumer spending as being due to
transitory factors and Barkin echoed that sentiment today. Consumer and business
confidence is "unbelievably positive," he said, in large part due to the tax
cuts and the omnibus bill as well as market returns. While the tax cuts are
clearly stimulative for consumers, Barkin said that their effect on business
investment might not be seen until next year. He noted that threatened trade
tariffs pose the biggest risk to business confidence, as firms turned from
practically "euphoric" in January to worried. However, he did note that there
has been no scaling back within his district, only uncertainty about the future.
     - In discussing the Fed's longer run monetary policy framework, Barkin said
the FOMC has yet to determine a terminal size for its balance sheet though the
committee is "reasonably comfortable" with the measured path for the wind-down.
He added that he was "intrigued" by the notion of having a target inflation
range, as opposed to a point target. He said he was "not a fan of false
precision," and that his "mind is open" as the Fed will begin having that debate
in the next few years.
--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
}); window.REBELMOUSE_ACTIVE_TASKS_QUEUE.push(function(){ window.dataLayer.push({ 'event' : 'logedout', 'loggedOut' : 'loggedOut' }); });