Richmond Fed President Thomas Barkin, one of the Fed officials, said today that there was no need to rush to cut interest rates, noting that the risk of new tariffs pushing inflation up remained uncertain. Barkin said in an interview with Reuters, “These data do not force us to cut interest rates… I am very clear that we have not met our inflation target for four years.”
Businesses in Barkin’s district (Richmond) are expecting higher prices due to new tariffs that will go into effect later in the year. And there’s a real possibility that tariffs could increase even more in the coming months. Barkin also said that unemployment is still low at around 4.2% and that companies are not showing any signs of mass layoffs. That suggests the Fed’s goal of “maintaining maximum employment” is still in place.
Barkin said that the final impact of the customs duties is not yet clear, and that the “wait-and-see” policy is being pursued in the current situation, adding, “We should not step on the brakes, but we should not step on the gas either.”
According to the FED’s new economic forecasts published on the same day, economic growth is expected to slow down and inflation to increase in the coming period. However, policymakers expect interest rate cuts to occur in 2025. This shows that although it is accepted that customs duties will increase prices, there is a belief that this effect will not be permanent.
But there are differences of opinion among the 19 Fed officials. Seven think there should be no rate cuts this year, while eight predict two. This view coincides with the market’s expectation of two 25 basis point cuts in September and December. Two of the remaining four officials expect one rate cut, and the other two expect three.
Fed Board members Christopher Waller and Thomas Barkin are on opposite sides of the spectrum when it comes to interest rate cuts. Waller says the rate cut could begin in July, while Barkin argues it’s too early. While neither name has given a specific rate, they have diametrically opposed views on the impact of the Trump administration’s tariffs on prices, employment and economic growth in the coming months.
*This is not investment advice.
