In a recent speech to the Maryland Bankers Association, Federal Reserve Bank of Richmond President Tom Barkin discussed the potential for future interest rate cuts and the conditions that would need to be met for such a decision to be made. Barkin emphasized that there is currently too much uncertainty surrounding President Donald Trump’s tariff plan to factor it into the Fed’s outlook. He stated that in order to cut rates again, the Fed would need to see inflation at 2% or weakening demand.
Barkin also highlighted the importance of listening to the message from businesses, which he stated is loud and clear: consumers are becoming more price sensitive. He expressed his belief in staying restrictive for longer in order to mitigate potential inflation risks. Additionally, Barkin noted that the pass-through from tariffs to prices is not straightforward and depends on various factors such as business supply chains and consumer price elasticity.
Regarding the current state of the economy, Barkin mentioned that companies are feeling optimistic but are also concerned about how upcoming changes will impact their businesses. Despite this, he stated that core underlying inflation is decreasing and that housing demand remains strong compared to supply. However, he acknowledged the growing US debt as a factor putting pressure on long rates.
Barkin expressed his opinion that the Fed does not need to be as restrictive as it once was, given the current economic conditions. He also stated that the Fed is well positioned to respond to any developments in the economy. Barkin noted that uncertainty in financial markets has decreased, with market predictions aligning with the Fed’s median policy path. He also highlighted potential upside risks to inflation and noted that the story of 2025 will likely focus less on monetary policy and more on economic fundamentals and geopolitics.
In conclusion, Barkin presented a positive baseline outlook for 2025, with more upside than downside risk to growth as long as employment and asset values remain strong. He emphasized the importance of monitoring inflation and economic fundamentals in the coming years. Overall, Barkin’s speech provided valuable insights into the Fed’s stance on interest rates and the factors influencing their decision-making process.
