Barkin Says Fed In Good Place To Respond To Evolving Economy

(Bloomberg) --Federal Reserve Bank of Richmond President Thomas Barkin said the economy is in a good place, which has allowed the US central bank to lower borrowing costs.

“A strong but choosier consumer, coupled with a more productive and better valued workforce has landed the economy in a good place,” Barkin said Tuesday in remarks prepared for a speech at the Baltimore Together Summit. “The Fed is in position to respond appropriately regardless of how the economy evolves,” he said, with interest rates off their peak but still above their historic lows.

Barkin voted with his Federal Open Market Committee colleagues on Nov. 7 to lower the benchmark lending rate by a quarter-point, bringing it into a range of 4.5% to 4.75%, following a half-point cut in September. The committee described risks to its employment and inflation goals as “roughly in balance.”

In his speech, the Richmond Fed president said increasingly price-sensitive consumers are helping curb inflation, and the labor market has remained resilient as companies have held on to talent. Productivity is up in part, he said, because companies made investments in automation during the pandemic and also now have a more experienced workforce amid lower turnover.

Barkin said he is looking at two scenarios for the economy: As election uncertainty fades, companies could begin investing and hiring again, leaving the Fed to focus on upside inflation risks. Or, companies could respond to margin compression from weaker pricing power by firing workers, which would elevate employment risks for the Fed.

Fed Chair Jerome Powell reiterated on Nov. 7 that officials are not in a hurry to reduce borrowing costs, saying at a press conference that the best way to find a neutral rate for the economy is “carefully, patiently.” Financial markets have dialed back expectations for a rate cut in December to about 65%, down sharply from near full certainty at the start of the month.

Responding to questions after his speech, Barkin echoed comments from Powell about waiting to see what happens following last week’s presidential election before determining how the economy might be affected.

“You do forecast based on trends, but you don’t try to forecast things that haven’t happened yet, right? If you do, you’re really going to get yourself in a real world of hurt,” Barkin said. “When things happen, then you put them into the forecast.”