By Michael S. Derby
NEW YORK (Reuters) -Federal Reserve Bank of Richmond President Thomas Barkin said Thursday the central bank has time to decide what’s next for monetary policy while it waits for further assurance that inflation is indeed falling back to target.
“I think it is smart for us to take our time,” Barkin said in a speech delivered to a gathering held by the Economic Club of New York. “No one wants inflation to reemerge,” the official said, “and given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down.”
Barkin spoke in the wake of last week’s Federal Open Market Committee that saw policy makers hold their overnight interest rate target steady at between 5.25% and 5.5%. The Fed also opened the door toward lowering rates amid swiftly retreating inflation pressures. But in a press conference after the FOMC meeting, Fed Chairman Jerome Powell cautioned against expectations of an imminent cut in rates, putting financial markets under pressure.
Barkin told reporters after his remarks that he doesn't want to pre-judge the outcome of future Fed meetings and declined to say when he'd be ready to cut rates. But he did say it was important to see a broadening of the factors pulling down inflation to gain confidence price pressures are on a sustained trajectory back to 2%.
In his speech, Barkin said inflation has appeared to be abating before popping higher again, which is why he wants to be sure inflation is truly heading back to 2% before calling for a change in policy.
“I am hopeful but still looking for more conviction that the slowing of inflation is broadening and sustainable,” Barkin said. But he added, “much of the inflation drop thus far has come from the partial reversal of pandemic-era goods price increases. Shelter and other services inflation remain higher than historical levels.”
Barkin also said a rebound in consumer sentiment, a willingness to spend by households even if it taps savings, joined with easier financial conditions “could also introduce risk to the inflation outlook.”
“It’s possible that we will return to the pre-pandemic economy pretty seamlessly,” Barkin said. But, “it is also possible that the landing might be somewhat bumpier, with continued inflation pressure or demand challenges that we will need to counteract.”
Barkin noted that it looks likely upcoming inflation data will continue to soften. He also said recent economic data has been “remarkable” for its strength.
Barkin also noted that fears of recession among his contacts have fallen, saying firms are hiring less but also firing less, while seeing reduced space to raise prices.