Barr Says Fed Must Move Carefully With Inflation Still at 3%
Federal Reserve Governor Michael Barr said the US central bank needs to proceed with caution in considering additional interest-rate cuts with inflation still running a full percentage point above its target.
“I am concerned that we’re seeing inflation still at around 3% and our target is 2% and we’re committed to getting to that 2% target,” Barr said Thursday at an event in Washington. “So we need to be careful and cautious now about monetary policy, because we want to make sure that we’re achieving both sides of our mandate.”
Barr could be a pivotal vote at the Fed’s policy meeting scheduled for Dec. 9-10. Several of his colleagues have declared already that they favor or oppose a third straight rate reduction at that gathering, making the outcome uncertain.
Following fresh jobs data released Thursday morning, Barr said he sees the labor market “kind of cooling,” with the economy creating jobs near the so-called break-even pace that keeps unemployment steady.
“Overall, the labor market is in kind of a rough balance, but it’s in balance at a pretty low level of net new job creation,” he said.
The US labor market added 119,000 jobs in September after contracting in August and the unemployment rate increased slightly to 4.4%, according to the Bureau of Labor Statistics. The jobs report, which was delayed by the government shutdown, is the last one officials will receive before they gather next month. Investors now see about a 40% probability of a rate cut at the December meeting, according to pricing in futures contracts.
Also speaking Thursday, Cleveland Fed President Beth Hammack called the September jobs data “stale” and reiterated her opposition to additional rate cuts. She also said lowering rates could threaten financial stability.
“Lowering interest rates to support the labor market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets,” Hammack said Thursday. “This means that whenever the next downturn comes, it could be larger than it otherwise would have been, with a larger impact on the economy.”
At a separate event in Indianapolis, Chicago Fed President Austan Goolsbee signaled he’s still apprehensive about delivering another rate cut in December.
Inflation “seems to have kind of stalled out and, if anything, given warnings of going the wrong way,” Goolsbee said. “So that makes me a little uneasy.”
Source : Bloomberg.com
