MNI BRIEF: Fed Ready To Respond, But Economy Solid - Barkin

The Federal Reserve should be ready to respond if labor market conditions deteriorate further but for now have taken some insurance against such deterioration, and data suggest a resilient economy and more inflation progress to come, Richmond Fed President Thomas Barkin said Tuesday.  

The 175 bps in cuts over the past year and a half have "taken out some insurance to support the labor market as we work to complete the last mile to bring inflation back to target," Barkin said. "So far, so good. But we know things change, and as they do, we remain ready to respond as appropriate."

"Most firms I speak to still aren’t doing layoffs at scale. Why would they, when demand and margins remain solid?," he said, adding "we are seeing an economy that remains remarkably resilient." 

"Many of those who were determined to pass on tariffs last spring now acknowledge their pricing power has been significantly constrained by customer pushback; that’s good news for inflation. The recent rise in productivity also suggests these businesses can bear higher input costs without facing as much pressure to increase prices."

Barkin said he's keeping an eye on the labor market, the growth of which he described as too narrowly focused on a couple of key sectors for comfort. "Low hiring hasn’t been translating into rising unemployment because the growth in labor supply has shrunk at about the same pace as labor demand. But slow job growth is not a comfortable place to be." (See: MNI INTERVIEW: Fed To Keep Cutting On Jobs Weakness - Tilley)