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Key Takeaways
- Richmond Fed President Tom Barkin said that continued labor market strength, along with slow progress on inflation, gave the Federal Reserve more time to evaluate data before considering an interest rate cut.
- Barkin’s comments come after the Federal Reserve kept interest rates at decades-high levels at its recent July meeting.
- Barkin said that while hiring has slowed, layoffs weren’t imminent, and it wasn’t certain that more progress on inflation would continue.
Faced with persistent inflation and a resilient labor market, one Federal Reserve official said the central bank still had time to evaluate economic conditions before moving to cut interest rates.
Speaking Thursday on a National Association of Business Economists webcast, Richmond Fed President Tom Barkin said economic conditions still showed strength and didn’t warrant a quick reaction from the central bank to cut interest rates.
After a weak July jobs report last Friday sent markets reeling, investors and economists questioned whether the Fed should act more aggressively on interest rate cuts. The Fed’s policy committee opted last week to leave the influential fed funds rate unchanged at its highest level since 2001, though Fed Chair Jerome Powell did say the committee could start easing policy as soon as September.
Barkin said there were two cases where the Fed would need to respond quickly with interest rate cuts, one being a quick rise in unemployment, the other being a faster drop in inflation, neither of which was occurring.
Need More Data on Inflation
He also said that while recent inflation data was looking better, with the latest reports showing price pressures easing across more parts of the economy, forecasts don’t have inflation moving much lower from current levels over the rest of the year.
“Are you ready to declare victory on inflation or would like to see a little more? That’s one part of the question,” Barkin said.
Businesses Cautious on Hiring, They’re Not Firing
Additionally, Barkin said that neither data nor conversations with employers in his district indicated that mass layoffs were imminent. Barkin pointed out that data showed “cautious” businesses had slowed hiring, but they weren’t firing either.
“You’ve got some room to see more on the labor side, you’ve got room to see more on the inflation side,” Barkin said, noting that Fed officials will get several more pieces of economic data before its next meeting on Sept. 17-18. “It made sense to me to take the time and learn whatever we learn over the next seven weeks.”