Richmond Fed President Tom Barkin said it would be smart for the central bank to "take our time" on rate cuts despite "remarkable" data showing that inflation is dropping.
Barkin made these comments during a speech before the Economic Club of New York, arguing that while it's possible for the US to return to a pre-pandemic economy "seamlessly," it’s also possible that the landing could be "bumpier."
"That’s why I think it is smart for us to take our time," he said. "No one wants inflation to reemerge. And given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down."
Barkin is the latest policymaker to pump the brakes on Wall Street expectations for an aggressive pace of cuts in 2024.
Boston Fed President Susan Collins and Cleveland Fed President Loretta Mester both said this week they need to see more to feel confident inflation is heading back to the central bank’s 2% target, predicting that would likely happen "later this year."
"I will need to see more evidence before considering adjusting the policy stance," Collins said in a speech in Boston Wednesday. "That said, as we gain more confidence in the economy achieving the committee’s goals ... I believe it will likely become appropriate to begin easing policy restraint later this year."
Mester used similar language Tuesday, saying the central bank could lower interest rates "later this year" while warning it would be a "mistake" to cut too soon.
Investors began the year predicting six cuts starting in March and Fed officials have been pushing back on those expectations for the last month.
That includes Fed Chair Jay Powell, who said in a press conference last week that a March cut is "probably not the most likely case or what we'd call the base case." He also made the same point in an interview on the TV program "60 Minutes" that aired Sunday night.
Barkin, in his speech Thursday, said he wants to avoid head fakes that cause inflation to spike again even though it seems to be coming under control. He cited the 1980s, when inflation also seemed under control only to pop up again. He also wants to see how COVID-19 and the recent bout of inflation may have changed the economy.
"Why not 'declare victory' and move rates back quickly to neutral levels?" Barkin said. "The plane has not landed yet."
Barkin said he’s still looking for more conviction that the slowing of inflation is broadening and sustainable. He says much of the inflation drop so far has come from a drop in goods prices that spiked during the pandemic. Inflation in shelter and other services remains higher than historical levels, he added.
Even as Barkin remains cautious, he expects the inflation data to continue improving over the next five months.
He is also encouraged by evidence on the ground, noting that the tone has shifted decisively away from talking about a recession. Businesses seem more and more convinced that price increases will be smaller, less frequent, and less likely to stick, he added.
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