Barkin says Fed would be 'smart' to take its time to cut rates due to persistent inflation

By Jeffry Bartash

'No one wants inflation to reemerge,' Richmond Fed's president says

The president of the Richmond Federal Reserve said it would be "smart for the Fed to take our time" before lowering interest rates in light of the elevated inflation readings in early 2024.

"No one wants inflation to reemerge," Thomas Barkin said in a speech to homebuilders in Virginia. "And given a strong labor market, we have time for the clouds to clear before beginning the process of toggling rates down."

Barkin is a voting member this year of the Fed panel that helps set the level of U.S. interest rates.

The Richmond Fed chief called the inflation reports in January and February "a little less encouraging" after a big slowdown in prices at the end of last year. He also said wages are still growing too fast.

Yet Barkin also thinks the current high level of interest rates will slow the economy further and probably nudge the annual rate of inflation closer to the Fed's 2% goal.

The biggest worry, he said, is that higher housing and services inflation could leave the Fed's preferred PCE price index "higher than our target."

Fed officials have signaled this week they want further confirmation inflation is slowing toward their goal before the move to reduce borrowing costs.

Inflation accelerated in the first two months of the year - what some Fed officials called a "bump" in the road - and raised worries about prices not coming down as fast as the central bank had hoped.

Investors are betting on the first cut coming in June, but remarks by Barkin and other Fed officials suggest the timing and size of potential rate cuts are still being debated.

The latest Fed forecast, released last week, still calls for three cuts this year in the central bank's benchmark short-term interest rate.

-Jeffry Bartash

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04-04-24 1259ET

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