Fed's Barkin: When we get to neutral, we can decide whether to put brakes on economy depending on inflation
|Federal Reserve Bank of Richmond President Thomas Barkin said on Tuesday that once the Fed has gotten interest rates back to neutral, it can then decide whether it needs to put brakes on the economy (i.e. by further lifting interest rates into restrictive territory), depending on the level of inflation, reported Reuters. The Fed's policy path will not necessarily cause a recession, Barkin noted.
Barkin noted Fed Chair Jerome Powell's comments that 50 bps rate hikes are on the table for upcoming meetings, and said that the Fed needs to get inflation under control, calling it high, persistent and broad-based. Getting inflation closer to the Fed's goal creates certainty that enables growth and supports maximum employment, he commented.
Demand in the US economy is strong and looks set to remain robust, he continued, driven by healthy business and personal balance sheets. Moreover, a number of pandemic-era inflation pressures will eventually settle, noted Barkin, adding that rising borrowing rates will dampen investment levels and spending on interest rate-sensitive items like houses and cars.
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