Richmond Fed President Thomas Barkin said the economy is in good shape, allowing the US central bank to reduce borrowing costs.
“A strong but more selective consumer, coupled with a more productive and better-valued workforce, has put the economy in a good place,” Barkin explained Tuesday in remarks prepared for a speech at the Baltimore Together Summit. “The Fed is in a position to respond appropriately regardless of how the economy evolves,” he said, as interest rates have fallen from their peak but remain above historic lows.
Barkin voted with his colleagues on the Federal Open Market Committee on November 7 to cut the benchmark lending rate by a quarter point, bringing it to a range of 4.5% to 4.75%, after a half-point cut in September. The committee described the risks to its employment and inflation targets as “roughly balanced.”
In his speech, the Richmond Fed president said increasingly price-sensitive consumers were helping to curb inflation, and the labor market remained resilient as companies held on to talent. He said productivity rose in part because companies invested in automation during the pandemic and now have a more experienced workforce amid lower labor turnover.
Barkin said he is looking at two scenarios for the economy: As election uncertainty fades, businesses can start investing and hiring again, leaving the Fed to focus on upside inflation risks. Or, companies could respond to margin pressure from weak pricing power by firing workers, which would increase employment risks for the Fed.
Federal Reserve Chairman Jerome Powell reiterated on November 7 that officials are in no rush to lower borrowing costs, saying in a news conference that the best way to find a neutral rate for the economy is “carefully and patiently.” Financial markets have cut expectations for a December interest rate cut to around 65%, down sharply from almost complete certainty at the start of the month.
Responding to questions after his speech, Barkin echoed Powell’s comments about waiting to see what happens after last week’s presidential election before determining how the economy will be affected.
“You’re making a prediction based on trends, but you’re not trying to predict things that haven’t happened yet, right? If you do that, you’re really putting yourself in a real world of hurt,” Parkin said. “When things happen, you put expectations into them.”
