If inflation Doesn’t Ease, Fed’s Barkin Says Rate Hikes Still Possible.

(CTN News) – Richmond Federal Reserve President Thomas Barkin emphasized the importance of keeping the possibility of raising interest rates open in case inflation fails to demonstrate sufficient progress in its decline.

While the market anticipates that the Fed has ceased raising rates and will begin reducing them in 2024, Barkin expressed his reluctance to commit to a specific policy trajectory due to the prevailing uncertainty.

During an interview at the CFO Council Summit, he stated that if inflation naturally and smoothly decreases, there would be no immediate necessity to make any adjustments to interest rates.

Barkin emphasized the importance of having the flexibility to adjust interest rates if inflation were to rise again. He acknowledged that there is no precise level of rates that can perfectly handle inflation in the desired manner.

Therefore, policymakers are constantly adapting their approach as they gather more information about the economy. Barkin’s comments came after the Commerce Department announced that the economy grew at a 5.2% annualized pace in the third quarter.

Despite strong growth, inflation remains above the Federal Reserve’s target of 2% annually, although it has been gradually decreasing in recent months.

The Fed’s preferred measure of inflation, core personal consumption expenditures, recorded a 12-month rate of 3.7% in September and is expected to show a slightly lower reading in October.

Futures markets suggest the Fed may cut interest rates up to four times in the next year.

Fed Governor Christopher Waller may implement rate cuts if inflation data improves, but Richmond Fed President Thomas Barkin is skeptical and not ready to provide an answer.

Atlanta President Raphael Bostic expects a significant economic slowdown and a further decrease in inflation.

Bostic has expressed his belief that the current monetary policy and financial conditions are having a significant impact on economic activity.

He also anticipates further cooling of economic activity and inflation due to the yet-to-be-seen effects of restrictive policy.

Additionally, Bostic’s staff predicts a decline in the inflation rate to 2.5% by the end of 2024, followed by a return to the Federal Reserve’s 2% target by the end of 2025. It is worth noting that both Bostic and Barkin will serve as voters on the rate-setting Federal Open Market Committee in 2024.

SEE ALSO:

US Dollar Weakens On Rate Cut Expectations, Australian Dollar Remains Strong Before Inflation Data.