(Bloomberg) — Federal Reserve Bank of Richmond President Tom Barkin said he believes the central bank’s current level of interest rates remains restrictive enough to lower inflation in 2025.
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Barkin voted in favor of a quarter-point reduction in the benchmark lending rate on Dec. 18. He rotated out of a voting position on the Fed’s interest-rate panel this year.
The Fed’s interest-rate-setting panel has pushed “the federal funds rate down 100 basis points to 4.3%,” Barkin said Friday in prepared remarks to the Maryland Bankers Association in Linthicum Heights, Maryland. “Inflation is not yet back to target, so we still have more work to do, but we don’t think we need to be nearly as restrictive as we once were to finish that job.”
Barkin said strong spending, consumer pushback on high prices and higher productivity from the labor force “has landed the economy in a good place.”
Over the past year, US economic growth has been stronger and inflation slightly higher than officials had predicted.
The Fed’s preferred inflation gauge rose 2.4% for the year ending in November. The price measure has been consistently above the Fed’s 2% target since early 2021. Fed officials are trying to manage inflation lower without damaging the labor market.
Demand for labor has cooled but hiring remains solid with employers adding 227,000 jobs in November. The unemployment rate rose slightly to 4.2% and has been in a range of 4% to 4.3% since May.
Barkin noted the economy is in a state of little firing and a slower pace of hiring. But he remains optimistic.
He said he expects more upside instead of downside surprises for economic growth, and the current labor market equilibrium is “more likely to break toward hiring than toward firing.”
The Richmond Fed chief said he sees a greater risk for higher inflation.
“Wage and product costs could see pressure,” Barkin said. “If they do, given recent experience with inflation, price-setters might have more courage to pass costs along.”
The Fed has lowered rates by a full percentage point in three moves since September. Chair Jerome Powell called the most recent move a “closer call,” adding that the federal funds rate was “now significantly less restrictive.” It currently sits in a range of 4.25% to 4.5%.
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“We can therefore be more cautious as we consider further adjustments to our policy rate,” Powell said at his Dec. 18 press conference.
Fed officials’ interest-rate forecasts for this year show a median estimate of just two more cuts this year. Four officials preferred not to cut at all in December. Cleveland Fed President Beth Hammack dissented against the decision in favor of holding rates steady.
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