- In a recent speech, FED member Thomas Barkin addressed the economic outlook and interest rates in the US.
- Richmond FED President Thomas Barkin expressed expectations that high interest rates would slow down the economy and reduce inflation to the central bank’s 2% target.
- Barkin warned of the risk of persistent inflation in housing and services potentially sustaining high price increases, as observed this year.
Richmond FED President Thomas Barkin discusses the impact of high interest rates on the US economy and the potential risks of persistent inflation.
Thomas Barkin on High Interest Rates and Economic Slowdown
Thomas Barkin, Richmond FED President and voting member in this year’s monetary policy, recently stated that the strong labor market provides the FED with an opportunity to reduce borrowing costs before inflation drops sustainably. However, he also warned of the risk of persistent inflation in housing and services, which could sustain high price increases, as observed this year.
Persistent Inflation and the Impact on the Economy
In his speech at the Columbia Rotary Club in South Carolina, Barkin expressed optimism that the current restrictive interest rate level could reduce demand and bring inflation back to the target. He noted that the full effect of high interest rates has not yet been seen. Despite this, sellers continue to try to increase prices and will do so until significant feedback from customers is received.
The FED’s Stance on Interest Rates and Inflation
Last week, US FED officials maintained the benchmark interest rate at a level not seen for over twenty years. Following the decision, FED Chairman Jerome Powell stated that recent inflation data did not provide the committee with increased confidence that price increases had slowed to 2%. Powell did not indicate when he believes the FED will lower interest rates.
Conclusion
Despite these challenges, the labor market continues to show resilience, with signs of moderation also evident. US employers reduced hiring in April and the unemployment rate unexpectedly increased. According to a report released by the Bureau of Labor Statistics on Friday, non-farm employment increased by 175,000 last month, recording the smallest increase in the last six months. As the FED continues to monitor these developments, the impact of high interest rates on the economy and inflation remains a key focus.
