Richmond Fed President Tom Barkin delivered prepared remarks to the Maryland Bankers Association in Maryland on Friday, laying out the Fed’s case for when to cut interest rates again, and what conditions would be needed to do so. The Fed’s Barkin also downplayed the direct and immediate impacts of a comprehensive tariff plan planned by incoming President Donald Trump.
Key points
There is too much uncertainty to include Trump’s policy in the forecast.
We would have to see inflation at 2% or double demand to lower interest rates.
The message companies are sending is loud and clear that consumers are becoming more price sensitive.
I’m in favor of staying tied for longer, given the potential inflation risks.
The transition from tariffs to prices is not easy, and depends on multiple factors including trade supply chains and the price elasticity of consumers.
Conditions for lowering interest rates again include confidence that inflation will return to 2%, or weak demand.
Businesses are feeling more optimistic about the economy but concerned about how the coming changes will impact their businesses.
I still see core inflation coming down nicely.
Demand for housing is still very healthy compared to supply.
US debt is large and growing, putting pressure on long-term interest rates.
I don’t see the need for the Fed to be as constrained as it was previously.
The Fed is well positioned to respond regardless of how the economy develops.
Uncertainty in financial markets appears to have eased, and the market’s expected policy path appears to be in line with the Fed’s average.
There is a growing understanding that long-term interest rates may not fall as much as hoped.
The labor market is more likely to move toward increased hiring rather than layoffs.
There are some potential upside risks to inflation.
Inflation is not yet back on target, and there is still more work to do.
The story of 2025 will not be about monetary policy as much as it will be about economic fundamentals and perhaps geopolitical aspects.
The fundamental outlook for 2025 is positive, with more upside than downside risks to growth.
As long as employment rates and asset values remain strong, consumers will spend.