US Fed Officials "Debate Among Themselves"; Barkin Emphasizes Not to Rush to Cut Interest Rates When Inflation Remains Unresolved

Thomas Barkin, president of the Richmond Fed, recently stated that the US Fed currently has no urgent need to cut interest rates, as the risks of tariffs on inflation have yet to materialize, and the job market and consumer spending remain stable.

On Friday (June 20) local time, Barkin told the media, "I don't think the current data supports us rushing to cut interest rates... I'm very aware that we haven't achieved our inflation target for four years."

He also pointed out that with new tariffs taking effect, businesses in the Richmond Fed's district expect prices to rise later this year, and tariff rates may be further increased in the coming months.

Additionally, he noted that the US unemployment rate remains low at 4.2%, and there are no signs of large-scale layoffs among businesses, indicating that the foundation for the Fed to achieve its goal of "maximum employment" remains solid.

Barkin said that consumer spending is "stable, not hot, but not weak either." "There's no urgent need for us to take action on any front. If inflation surges, I won't choose to ignore it... but whether that will happen remains to be seen."

On Wednesday this week, the US Fed announced that it would maintain the target range for the federal funds rate at 4.25% to 4.50%, marking the fourth consecutive decision to keep rates unchanged. Shortly before the news was released, Fed Governor Christopher Waller stated that policymakers should consider lowering interest rates as early as July.

However, Barkin, unlike the "dovish" Waller, said, "I'm satisfied with the current policy level... Core inflation remains above the target, and maintaining a moderate monetary tightening is a good way to address this situation."

This divergence is also reflected in the "dot plot" of interest rate forecasts, where the median expectation of 19 policymakers for the end-of-2024 interest rate falls between 3.75% and 4.00%, implying a cumulative 50 basis point cut from the current level by the end of the year.

Barkin pointed out that while 10 officials expect two to three interest rate cuts (of 25 basis points each) this year, the other nine believe there will be only one cut or even no change. "Both views are reasonable, depending on their expectations for the economy and inflation, as well as their weighting of various risks."

Barkin emphasized that, in his view, there are multiple scenarios that could unfold in the coming months: from tariffs being fully passed on to consumers, driving up prices, to businesses trying to absorb costs through layoffs, thereby raising the unemployment rate.

"The tariff decision is still pending, and I don't have clear confidence in the direction of trade policy. I can only accept that."He said, "I'm not sure how these tariffs will affect our two major policy goals—inflation and employment. There will definitely be inflationary pressure, but it's hard to tell how much right now."

Barkin revealed that businesses in his district are also grappling with similar issues, and are therefore generally adopting a wait-and-see attitude towards capital investment and major hiring decisions—this static environment may slow down growth, but it could also maintain the current employment balance of "hiring fewer workers and laying off fewer workers."

"The general response we're hearing right now is still 'wait and see.' 'Wait and see' doesn't mean hitting the brakes, but it also doesn't mean accelerating."