MNI: Barkin Says Fed Should Hold Steady Amid Foggy Outlook

Federal Reserve Bank of Richmond President Tom Barkin said Thursday the central bank has scope to hold its policy rate steady and wait until uncertainty diminishes around the outlook. 

"We face the same fog as businesses and consumers. How does one drive in fog? Carefully and slowly, and if there’s a safe place to pull over, you do so to avoid getting in trouble. That’s where we are," said Barkin in prepared remarks. 

"With the labor market still solid and inflation still above target, our moderately restrictive stance is a good place to be. If conditions start to shift, we are well positioned to adjust. Until then, like businesses and consumers, we are waiting for the fog to clear," he said. The Fed last week voted to hold the federal funds rate steady.

ZERO VISIBILITY

Federal government policy has taken center stage, Barkin noted. "One can debate the pros and cons of these policies over the medium term, but, in the near term, the pace of change seems to have created a sense of instability. Business optimism has dropped. Consumer sentiment has fallen." 

Barkin's remarks focused on the change in business and consumer sentiment since the start of the year that is causing uncertainty in forecasting. "With all this change, a dense fog has fallen. It’s not an everyday 'forecasting is hard' type of fog. It’s a 'zero visibility, pull over and turn on your hazards' type of fog," Barkin said in a speech at Washington and Lee University. (See: MNI INTERVIEW: CFOs Gloomier, Still Hopeful -- Fed-Linked Poll)

There are signs of caution from consumers and a number of large firms, including airlines and retailers, have raised flagging consumer confidence in recent weeks while warning about weaker demand, Barkin said. "That would be rational. Wage growth expectations are normalizing at the same time as tariff talk is pushing up near-term inflation expectations. The net is that expected real wages are dropping. At the same time, equity markets have been volatile. Both would signal less strength in consumer spending."