MNI BRIEF: Fed's Barr Sees Rates On Hold 'For Some Time'

The Federal Reserve should keep interest rates on hold "for some time" until data show goods inflation receding and the job market staying stable, Fed Governor Michael Barr said Tuesday, adding the AI boom is unlikely to be a reason for lowering rates. 

"The prudent course for monetary policy right now is to take the time necessary to assess conditions as they evolve. I would like to see evidence that goods price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable," he said in remarks prepared for the New York Association for Business Economics in New York, N.Y. 

"Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks." 

The January jobs report offered assurance that the labor market is stabilizing, but "it is a delicate balance, and that means that the
labor market could be especially vulnerable to negative shocks," Barr said. AI could disrupt the labor market in the short term but is likely to create new jobs and augment productivity and boost real wages over the long run, he said. 

In addition to the "significant" risk of persistently elevated inflation at the moment, AI investment and higher productivity growth would imply a higher neutral rate and could be inflationary in the short run, Barr said. "For all of these reasons, I expect that
the AI boom is unlikely to be a reason for lowering policy rates." (See: MNI INTERVIEW: US Labor Market 'On Pause' Amid AI Uncertainty)