Carla Mozee,
schools
The “whiplash” of economic data is underscoring the Federal Reserve's patient approach in initiating monetary policy easing, Richmond Fed President Tom Barkin said Monday.
The economy is moving towards a better balance although inflation data so far in 2024 has “It has been disappointing to those who anticipated that the personal consumption expenditure (PCE) price index would remain lower,” Barkin said, according to a copy of a speech given to the Columbia Rotary Club.
“We have said we want to gain greater confidence that inflation is moving sustainably toward our 2 percent target. And given a strong labor market, we have time to earn that confidence,” said Barkin, a voting member this year on the Federal Open Market Committee.
- The labor market has been “remarkably resilient,” with 246,000 jobs created per month on average in 2024 and the unemployment rate remaining below 4% for 27 consecutive months, the first such streak since the end of the 60s.
- While GDP slowed in the first quarter to 1.6% due to volatility in import and inventory categories, demand “remains strong,” he said. Final private domestic purchases are a better underlying measure, and growth was solid at 3.1%. “I am optimistic that the current restrictive level of rates can reduce demand to bring inflation back to our target,” Barkin said.
- Barkin doesn't believe the economy is overheating, but said the Federal Reserve “knows how to respond” if that happens and has “enough firepower” to support the economy if it slows more significantly.
- “Meanwhile, the recent shock in data has only confirmed the value of the Fed being deliberate. “The economy is moving toward a better balance, but no one wants inflation to rise again,” Barkin said.
- Consumers and businesses have been “protected” from higher interest rates due to pandemic-era debt payments and refinancings, so their aggregate interest burden is not yet historically high. “To me, that suggests the full impact of higher rates is yet to come,” he said.
