Fed’s Barkin sees room for rate decision amid easing inflation pressures

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In a speech delivered on Tuesday to the Real Estate Roundtable, Thomas Barkin, President of the Federal Reserve Bank of Richmond, emphasized that policymakers have sufficient time to decide whether to maintain or raise interest rates to achieve their 2% inflation target. This statement comes in the wake of the Federal Open Market Committee’s (FOMC) decision to hold off on a rate hike at its September meeting to gather more data and evaluate the impact of previous monetary tightening measures.

Barkin acknowledged a decrease in annual inflation from 9.1% in June last year to 3.7% in September as a positive trend. Yet, he expressed uncertainty about future inflation paths and the possible need for additional actions. Despite tighter financial conditions due to a recent bond yield surge, Fed officials, who have raised interest rates by over 5 percentage points since March 2022, are anticipated to maintain policy stability for another month.

Barkin also pointed out potential risks such as food-price shocks and a stronger housing market that could reignite inflation. He also mentioned the expected Israel-Hamas ground war which could keep energy prices high and influence price growth.

Despite these uncertainties, signs of economic resilience, including robust retail sales and factory output figures, suggest that rate hikes remain an option. Futures markets are pricing in a less than 15% chance of a quarter-point rate increase at the November FOMC meeting, though odds of a hike by the January meeting are above 50%.

Barkin stressed the delicate balance between undercorrecting and overcorrecting inflation and how external events have the potential to disrupt even the best policies. He noted that 12 of 19 officials expect another rate increase before year-end.

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