By Howard Schneider
(Reuters) – Richmond Federal Reserve President Thomas Barkin on Monday said he is comfortable with the U.S. central bank moving to a data-dependent approach on whether to raise interest rates from here, but he is not yet convinced inflation is on a steady path downward.
Barkin, in an interview with Reuters, said he also is withholding making a decision on whether to raise rates at the Fed’s June 13-14 policy meeting, given there is more economic data still to come and uncertainty around bank credit and the U.S. debt ceiling.
The Fed has raised interest rates by 5 percentage points since March 2022 in an effort to lower the highest inflation in 40 years back to the central bank’s 2% annual target. That has begun to show an impact on lowering some of the demand inputs – such as consumer spending – that drive inflation, but Barkin said other areas like the job market have shown less of an impact.
“On the unemployment side, I think you could fairly say it’s moved from red hot to hot, right?” Barkin said. “But there’s nothing about 3.4% unemployment that feels like cool, and you know wage gains were significant as well.”
“I’m still seeing data that suggests a hot job market and enduring inflation,” he said. “I continue to believe that inflation will last longer than perhaps market measures of inflation compensation would suggest. And so I’m still looking to ask myself the question whether we need to do more?”
In announcing their latest rate hike earlier this month, Fed officials also signaled they may be at a point where they could pause further increases to gauge the impact of their previous actions as well as from what is expected to be tighter conditions caused by the recent run of bank failures.
“I’m very comfortable with data dependence because I think the uncertainty level is high,” Barkin said.
Asked how he is currently leaning about the June policy decision, Barkin said there is still a full month of data to come, plus unresolved questions around the debt ceiling standoff in Washington and the degree to which banks will tighten credit.
As a result, he said, “I’m going to withhold judgment on that.”
(Reporting by Howard Schneider; Writing by Dan Burns; Editing by Paul Simao)
