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Richmond Fed's Barkin: May CPI "Very Encouraging", To Learn A Lot More Over Coming Months

FED
Richmond Fed President Barkin says at MNI's webinar that May's inflation report was "very encouraging", and overall, the economy appears to be "clearly" on the "back side" of inflation. Says that inflation in Jan/Feb/Mar "came in hot", though Apr / May were "less hot". "I certainly didn't get more confidence from the first quarter of the year...we'll see where we go."
  • Inflation doesn't just go down to 2% in an instant, he says. He's looking for "sustainment" and "broadening" of disinflation (for example, the % of the PCE basket that is rising at 2% vs 3+%).
  • Barkin says that labor market reports are, overall, heading in the right direction. But it's "not hard to envision scenarios where the labor market weakens." The hiring rate has dropped a lot; that hasn't shown up in the jobs numbers because the separations rate is low. But that can change quickly. Covid-hit sectors are still in catch-up mode, and you wonder what happens when they catch up.
  • In deciding how to read data in order to reach a conclusion on policy, Barkin says: You can choose to take a lot of signal from 2H 2023: if you do, you see a soft landing right in your sights. Or you could take a lot of signal from 1Q 2024: strong economy, inflation potentially re-accelerating. Or you could take a lot of signal from the last month's data: the economy flattening out (though payrolls were strong), and most people would project a PCE in line with our target. It's not clear to me which of those frameworks to use, and we will learn a lot more over the next several months.
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