By Michael S. Derby
NEW YORK (Reuters) – Federal Reserve Bank of Richmond President Thomas Barkin said on Tuesday that the U.S. central bank still has time to decide on its next interest rate move as anecdotal information points to an economy that’s slowing amid a cooling trend in inflation pressures.
“I see an economy that is much further along the path to demand normalization than much of the data would tell you,” even as “the path for inflation isn’t clear yet,” Barkin said in the text of a speech to be delivered before the Real Estate Roundtable in Washington.
Having held rates steady at the September Federal Open Market Committee meeting, Barkin said “we have time to see if we have done enough, or whether there’s more work to do.”
Barkin spoke after the release earlier on Tuesday of much stronger-than-expected retail spending data for September. Recent rounds of economic data have shown unexpected resilience in the face of what have been very aggressive Fed rate hikes aimed at lowering inflation back to the central bank’s 2% target.
Rising borrowing costs driven by higher bond yields coupled with an extended trend of falling inflation data have led many to believe the Fed is done with rate increases and will leave its current target rate range at between 5.25% and 5.5% for an extended period. A number of Fed officials have said over recent days they believe the Fed is at or near the peak of its rate rise cycle.
In his remarks, Barkin contrasted the strength of the recent data against his work to collect economic intelligence on the ground.
“I am still looking to be convinced, both that demand is settling and that any weakness is feeding through to inflation,” Barkin said. From his local contacts Barkin said he’s hearing that demand is softening and “parts of the labor market are coming into better balance.” He also noted that wage pressures, while still strong, are moderating.
When it comes to inflation, “we aren’t there yet, but we’re headed in the right direction,” Barkin said. But he added he’s hearing that businesses are still willing to probe around to see if they can raise prices but are past the peak of being able to lift what they charge for their goods and services.
Barkin also said in his remarks that if a downturn were to strike the economy it’s not a given that it would be severe. That’s because many have been predicting a recession and presumably have been preparing for it, while latent demand in the economy could limit how much activity slows.
Barkin also warned that Fed policy is still subject to events out of its control due to things like unrest in the Middle East.
(Reporting by Michael S. Derby; Editing by Andrea Ricci)