The president of the Federal Reserve Richmond’s Thomas Barkin said Tuesday that the lender still has time to decide its next interest rate move as anecdotal data points to an economy that is slowing amid a trend in cooling inflationary pressures. .
“I see an economy that is much further along the path to normalizing demand than much of the data would tell you,” even when “the path for inflation is not clear yet,” Barkin said in the text of a speech he will deliver to the Real Estate Roundtable in Washington.
Having held rates steady at the U.S. central bank’s Federal Open Market Committee’s September meeting, Barkin said “We have time to see if we have done enough or if there is more work to do.”
Barkin spoke after Tuesday’s release of much stronger-than-expected September retail spending data. The latest economic figures have shown unexpected resistance to the Fed’s aggressive increases in the cost of credit to reduce inflation to the 2% target.
Rising borrowing costs, driven by rising bond yields, along with the prolonged downward trend in inflation data, have led many to believe that the Fed is done with rate hikes and will stop its current target range between 5.25% and 5.5% for a long period.
Several policymakers have said in recent days that they believe the Fed is at or near the peak of its rate-hiking cycle.
In his statements, Barkin contrasted the strength of recent data with his work collecting economic information on the ground.
“I am still waiting to be convinced, both that demand is settling and that any weakness is being transmitted to inflation,” he claimed. From his local contacts, he assured that he is hearing that demand is softening and that “parts of the labor market are becoming better balanced.” He also noted that wage pressures, while still strong, are easing.
Regarding inflation, “We are not there yet, but we are going in the right direction,” Barkin said. However, he added that companies are still willing to test the waters to see if they can raise prices, but that they are past the tipping point at which they can raise what they charge for their goods and services.
Barkin also said in his speech that if the economy were to suffer a recession, it is not certain that it would be severe. This is because many have been predicting a recession and presumably preparing for it, while latent demand in the economy could limit the extent to which activity slows.
Barkin also warned that the Federal Reserve’s monetary policy remains subject to events beyond its control, such as what is happening in the Middle East.
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