Fed’s Barkin: It remains to be seen whether monetary policy needs to be tightened

The president of the Federal Reserve of Richmond, Thomas Barkinstated on Thursday that, although there have been “real progress” in matters of inflationit is still unclear whether the US central bank will have to raise its official interest rate to finish the job.

“I foresee some kind of slowdown, as I think the net impact of all this tightening will end up affecting the economy more than it has.”Barkin said on an MNI webcast. “It remains to be seen whether a slowdown that settles inflation requires more of us, which is why I supported our decision to maintain rates at our last meeting.”

Last week the Fed left its monetary policy rate in the range of 5.25%-5.50%where it has been since July, and Fed Chair Jerome Powell said he is unsure whether or not more tightening will be needed.

Economic growth has surprised most analysts with its strength despite the Fed’s aggressive rate hikes, and although inflation has come down from its peak last year, it still sits at 3.4% by the Fed’s preferred measure, well above the Fed’s target 2%.

However, according to Barkin, in conversations with businessmen and banks it is evident that the economy is slowing down.

Barkin said the Fed will have to “walk a fine line” between doing too much and doing too little, and that any external shock has the potential to disrupt monetary policy.

“With restrictive rates and tighter financial conditions, we have time to reconcile competing narratives on demand and test different views on the path of inflation”Barkin said.

Although he is still not convinced that inflation is on a smooth trajectory towards the 2%Barkin said that as labor supply and demand become better balanced and supply chains become healthier, “perhaps inflation can return to target without more help from us and without too much damage to demand.”

Source: Reuters