Federal Reserve Bank of Richmond President Thomas Barkin said Thursday that how businesses and consumers respond to ongoing economic shocks will determine whether the central bank can maintain steady interest rates or needs to consider raising them.
Speaking to an economic group in Raleigh, North Carolina, Barkin said the Fed's decision to hold rates steady at its last meeting "made sense" as policymakers gathered more information on jobs and inflation. The central bank is monitoring developments including high oil prices and the rollout of artificial intelligence technology.
"It made sense to give ourselves time," Barkin said, adding he expected that in coming months the Fed could see further developments that "pressure the employment side of our mandate, the inflation side of our mandate, or conceivably both".
A growing number of Fed policymakers at the April meeting felt a rate hike might be needed to address inflation that has been rising due to high energy costs, an investment boom around AI, and resilient household consumption.
Barkin did not directly state his expectations for interest rates. He said the path of policy will depend on whether consumers continue spending, whether businesses use rising productivity as a reason to reduce staff, and whether inflation expectations remain anchored after more than five years in which the Fed has missed its 2% target.
"Looking through supply shocks has worked well for a generation," Barkin said. He noted it is worth asking whether the cumulative impact of multiple economic waves risks destabilizing inflation expectations, given heightened geopolitical tensions, trade fragmentation, severe weather events, rising government debt, cyber risk, and slowing workforce growth.
Barkin said the Fed's current monetary policy setting is "well positioned" to manage risks to both the labor market and inflation. Investors now see a quarter-point rate increase by the end of 2026 as probable, according to federal funds futures.
Barkin also said gas prices could take months to fall even after the Strait of Hormuz is reopened. He added that he does not believe the net impact of AI on jobs will be negative, though the transition could be difficult.
Fed was "basically there" to meet its inflation target before tariffs and the rise in oil prices, Barkin added.
source https://www.investing.com/news/economy-news/feds-barkin-says-rate-decision-hinges-on-economic-shock-response-4704707
