The Fed’s Tom Barkin says the US faces risks to both central bank mandates

Further rate changes from the U.S. Federal Reserve will need to be “finely tailored” to incoming data, given the risks to both the Fed’s unemployment and inflation targets, Richmond Fed President Tom Barkin said on Tuesday. “Both sides of our mandate need to be watched. Unemployment remains historically low, but has risen. Inflation has fallen, but remains above target,” Barkin said in comments prepared for delivery to the Chamber of Commerce in Raleigh, North Carolina. Interest rates are now “within estimates of neutral,” the level that will neither encourage nor discourage investment and spending, Barkin said.

“Going forward, policy will require fine-tuned judgments, balancing progress on both sides of our mandate.” “No one wants to see the labor market deteriorate much further,” he said. “With inflation above target for almost five years, no one wants higher inflation expectations to be embedded. It’s a delicate balance.”
The Fed cut its benchmark interest rate by a quarter of a percentage point at its December meeting, but officials indicated they would likely suspend further cuts for now to get a better sense of the economy’s direction, a process still hampered by the interruption of government statistical reports during last fall’s shutdown.
Barkin said it was clear the economy remained resilient and defied expectations of major disruptions to growth due to shifts in trade and immigration policies. But the country enters the year with both downside and upside risks.On the other hand, Barkin noted that recent employment and demand growth have been “narrow,” driven by a small number of sectors such as healthcare, and in the case of demand, underpinned by the artificial intelligence boom and spending by higher-income consumers.

On the upside, Barkin, who is a non-voter on interest rate policy this year, said the economy is benefiting from underlying strength, with uncertainty expected to rise this year and the stimulus coming from recent tax and regulatory changes and the impact of Fed rate cuts over the past 16 months.

“Resilience is enabled by strong underlying dynamics. Consumers have jobs. Real wages are rising. Asset values ​​continue to grow. Corporate profits and earnings prospects remain strong,” Barkin said. “In these circumstances, it is difficult to imagine consumers and companies sitting on the sidelines.”