Fed official says economy shows strength, no need to rush to cut interest rates

Key conclusions

Richmond Fed President Tom Barkin said continued strength in the labor market and slow progress on inflation gave the Fed more time to evaluate the data before considering a rate cut.
Barkin’s comments came after the Federal Reserve last met in July, where it kept interest rates at their highest level in decades.
Barkin said that while hiring has fallen, layoffs are not a threat of imminent change and it is unclear whether inflation will continue to improve.

With inflation remaining high and the labor market resilient, a Federal Reserve official said the central bank still has time to assess economic conditions before deciding whether to cut interest rates.

In a Thursday appearance on the National Association of Business Economists’ webcast, Tom Barkin, president of the Federal Reserve in Richmond, said the economy remains strong and does not require a quick response from the central bank to cut interest rates.

After a weak July jobs report stunned markets last Friday, investors and economists have begun to wonder whether the Fed should move more aggressively on interest-rate cuts. The Fed’s policy committee last week opted to leave the influential federal funds rate unchanged at its highest level since 2001, although Fed Chairman Jerome Powell has said the committee could begin easing policy as early as September.

Barkin said there are two cases where the Fed would have to respond quickly by cutting interest rates. One is a rapid rise in unemployment, and the other is a faster fall in inflation. Neither of those cases has occurred.

More inflation data needed

He added that while recent inflation data has looked better, with the latest reports pointing to easing price pressures across much of the economy, inflation is not forecast to fall much from current levels in the rest of the year.

“Are you ready to declare victory over inflation or would you like to see a little more? That’s one part of the question,” Barkin said.

Companies are hiring carefully, not firing

Additionally, Barkin said neither the data nor conversations with employers in his district indicate that mass layoffs are imminent. Barkin noted that the data shows that “cautious” companies have slowed hiring but not laid off either.

“You have some room to see more on the labor side, you have some room to see more on the inflation side,” Barkin said, noting that Fed officials will receive several more economic data releases before their next meeting on Sept. 17-18. “It just made sense to me to take the time and learn everything we learn over the next seven weeks.”