Federal Reserve Bank of Richmond President Thomas Barkin said policymakers “have time” to work out whether they can hold interest rates steady or if they need to raise them further to get inflation to policymakers’ 2% goal.
(Bloomberg) — Federal Reserve Bank of Richmond President Thomas Barkin said policymakers “have time” to work out whether they can hold interest rates steady or if they need to raise them further to get inflation to policymakers’ 2% goal.
“I am still looking to be convinced, both that demand is settling and that any weakness is feeding through to inflation,” Barkin said in remarks prepared for delivery to the Real Estate Roundtable in Washington Tuesday.
While the path for inflation “isn’t yet clear,” he said, “we have time to see if we have done enough, or whether there’s more work to do.”
Noting that headline annual inflation had slowed to 3.7% in September from a peak of 9.1% in June last year, the Richmond Fed chief said “we aren’t there yet, but we’re headed in the right direction.” Barkin, who does not vote on rate decisions this year, said he supported the Federal Open Market Committee’s decision to forgo a rate hike at its September meeting so officials can gather more information to assess the effects of cumulative tightening so far.
Fed officials — who have raised interest rates by more than 5 percentage points since March 2022 — have signaled they’re inclined to hold policy steady for a second time in a row next month, after a recent run-up in bond yields tightened financial conditions.
Read More: Fed Officials Set to Extend Pause Without Saying Hikes Are Done
But hikes aren’t off the table thanks to data that keep demonstrating the US economy’s resilience, including retail sales and factory output figures out earlier Tuesday.
Fed officials see a number of risks — including food-price shocks and a stronger housing market — that could reignite inflation, minutes of their most recent meeting showed. Also, an expected ground war between Israel and Hamas threatens to keep energy prices elevated, feeding price growth.
“We are walking a fine line — if we undercorrect, inflation re-emerges. If we overcorrect, we do unnecessary damage to the economy,” Barkin said. “And even the best policy has the potential to be waylaid by external events, as we’ve been reminded with the recent news from the Middle East.”
Speaking to reporters after his speech, Barkin said that if inflation started to move up and if demand stays as strong as it’s been, “then you’d say that’s the kind of environment where you’d want to do more” through a rate hike.
In projections submitted in September, 12 of 19 officials said they expect another rate increase before the end of the year. Futures markets are pricing in a less than 15% chance of a quarter-point rate increase at the November meeting, though odds of a hike by the January meeting are above 50%.
Barkin’s comments echoed remarks he made on Oct. 5, when he said policymakers have time to determine if they need to do more work to cool inflation.
(Updates with comment from Barkin in ninth paragraph.)
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