Richmond Fed President Barkin Expects Soft Economic Landing but Keeps Rate Hikes as a Possibility

Richmond Federal Reserve President Thomas Barkin expressed optimism about the economy’s trajectory towards a soft landing, emphasizing caution amid potential challenges. Despite progress in managing inflation and sustaining economic growth, Barkin highlighted that interest rate hikes are still under consideration, even though the Federal Reserve officials signaled a probable conclusion to this phase of policy tightening at their recent December meeting.

In prepared remarks for a speech in Raleigh, North Carolina, Barkin, a voting member on the Federal Open Market Committee (FOMC) for the current year, acknowledged the discussions around the potential for a soft landing. He recognized the need for vigilance in navigating uncertainties and outlined four risks: the economy running out of fuel and reversing growth, unexpected turbulence like geopolitical events or financial shocks, approaching the wrong airport with inflation remaining above the Fed’s 2% target, and a delayed landing with unexpectedly high demand contributing to inflation.

Barkin likened the Fed’s role to that of a pilot guiding an airplane for landing, emphasizing the challenges of steering the course in a foggy outlook with varying headwinds and tailwinds.

While inflation, measured by the Fed’s preferred gauge of personal consumption expenditures (PCE) prices, rose 2.6% in November from a year ago, Barkin highlighted a six-month basis PCE inflation at 1.9%, below the Fed’s target. He underscored the complexities of the economic landscape and the potential for additional rate hikes.

The speech follows the FOMC’s decision three weeks ago to maintain interest rates, with committee members projecting three quarter-percentage point rate increases in 2024. Barkin did not disclose his individual stance on the dot-plot matrix but emphasized lingering risks that suggest the Fed’s job in addressing inflation might not be complete.

As the FOMC releases minutes from its December meeting, Barkin’s remarks offer insights into policymakers’ considerations and the ongoing evaluation of the economic outlook.

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