Fed’s Barkin: can’t rely on tightening from long-term rates

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(Reuters) – Richmond Federal Reserve Bank chief Thomas Barkin on Tuesday said that higher long-term borrowing costs are putting downward pressure on demand but it’s unclear how that will affect the central bank’s rates decision in two weeks.

“Longer-term rates have moved up, that’s certainly tightened financial conditions…the challenge with depending on (long-term) rates is they can move,” Barkin told reporters after a speech at the Real Estate Roundtable in Washington, D.C.

Several of Barkin’s colleagues at the Fed have in recent weeks said that the rise in Treasury yields over the past few months is doing some of the work to slow the economy that the Fed would otherwise need to do by raising the short-term policy target further. The yield on the 10-year benchmark Treasury note rose to a high of 4.857% on Tuesday after a report showed brisker-than-expected retail sales.

“I understand so little about the long end of the yield curve that I try not to over index them,” Barkin said. “I have no idea where rates are going to be three weeks from now, given what’s happening globally.”

The challenge right now, Barkin said, is that official data tracking economic growth, retail sales, job growth and even the most recent reading on inflation suggest a lot more strength than what he is hearing when he talks with businesses around his district. “It’s hard to square those two,” he said.

Asked if that means he’d prefer to leave interest rates in their current 5.25%-5.50% range at the Fed’s upcoming, meeting, scheduled for Oct. 31 – Nov. 1, he said, “We’ll make the decision at the meeting. We’re going to have a good debate, as always.”

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