Fed member: Monetary policy in good position to respond to shock

How businesses and consumers respond to current economic shocks will determine whether the Federal Reserve can "look beyond" current high inflation or whether it will need to consider raising interest rates, Richmond Bank President Thomas Barkin said on Thursday.

The decision to hold rates steady at the Fed's last meeting "made sense" as policymakers gathered more information about jobs and inflation amid a series of economic developments as disparate as high oil prices and the rollout of artificial intelligence technology, Barkin said in remarks prepared to be delivered to an economics group.

"It made sense to give ourselves time," Barkin said.

Board member added that he hoped that in the coming months the Fed could see other developments that "put pressure on the employment side of our mandate, the inflation side of our mandate, or possibly both. If that happens, the Fed will be well positioned to respond appropriately."

A larger number of Fed policymakers at the April meeting felt a rate hike might be necessary to tamp down inflation, which has been rising in the face of high energy costs, an investment boom around AI, and household consumption, which has remained unexpectedly resilient.

Barkin did not speak directly about his expectations for interest rates or the need for a hike.

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But he said the path of monetary policy will depend on whether consumers remain as resilient as they have been in spending, whether companies begin to use rising productivity as a reason to lay off workers, and whether inflation expectations can remain anchored after more than five years in which the Fed missed its target.

"Looking beyond supply shocks worked well for a generation," Barkin said.

"Looking ahead, it's easy to imagine more challenging conditions: heightened geopolitical tensions, trade fragmentation, more frequent severe weather events, rising public debt, cyber risk, slowing labor force growth, and more. It's worth asking whether the cumulative impact of so many waves risks loosening the anchor."

Source: CNN