Summary: Federal Reserve Bank of Richmond President Thomas Barkin believes that the central bank can take its time in deciding on its next interest rate move. Barkin points to anecdotal information indicating a slowing economy and cooling inflation pressures. Recent economic data has shown unexpected resilience, despite aggressive rate hikes by the Fed. While some believe the Fed is done with rate increases, others argue that the central bank is near the peak of its rate rise cycle. Barkin emphasized the need for further evidence of demand normalization and signs of weakening inflation before making any decisions.
Federal Reserve Bank of Richmond President Thomas Barkin has stated that the Federal Reserve has the luxury of time in making a decision on its next interest rate move. Barkin pointed to anecdotal information suggesting a slowing economy and cooling inflation pressures. Speaking at the Real Estate Roundtable in Washington, Barkin noted that the economy is further along the path to demand normalization than the current data indicates. He also mentioned the uncertainty surrounding the path of inflation. Despite stronger-than-expected retail spending data for September, Barkin believes that it is still necessary to assess whether the Fed has done enough. He emphasized the need to determine if further action is required.
In recent months, the economy has shown unexpected resilience in the face of aggressive Fed rate hikes aimed at reducing inflation. Rising borrowing costs, driven by higher bond yields, and a steady decline in inflation data have led some to believe that the Fed’s rate increases have reached their peak. Many expect the Fed to maintain its current target rate range for an extended period.
Barkin compared the strength of the recent data with his on-the-ground economic intelligence collection efforts. He said that he is still looking to be convinced that demand is settling and that any weakness is affecting inflation. Barkin has heard from his local contacts that demand is softening and certain parts of the labor market are finding a better balance. He also noted that wage pressures, while still strong, are moderating. Although inflation is not yet at the desired level, Barkin believes that progress is being made. While businesses are still testing the limits of price increases, they have reached the peak of what they can charge for goods and services. Barkin also expressed that if an economic downturn were to occur, its severity would not be guaranteed. The anticipation of a recession and latent demand in the economy could potentially limit the extent to which economic activity slows down.
Barkin also cautioned that Fed policy is susceptible to external events beyond its control, such as unrest in the Middle East.
Tags: Federal Reserve, interest rates, economic data, inflation pressures, rate increases, demand normalization, economic resilience, recession prediction, wage pressures, external events