Fed’s Barkin hints at cautious rate path with inflation seen as main risk

Risks to the Federal Reserve’s dual mandate “lie on the inflation side”, Richmond Federal Reserve (Fed) President Thomas Barkin said on Monday. Although he described the direction of monetary policy as “straightforward”, he said policymakers should proceed “with care.”

Demand and widespread cost increases are putting pressure on inflation, Barkin said in prepared remarks for the Greater Greer Chamber of Commerce in South Carolina. Describing the US economy as “remarkably stable”, he added that businesses say they are “trying to pass on higher costs.”

Barkin highlights inflation risks and calls for policy caution:

Inflation is the source of risk to the US central bank’s mandate.

Monetary policy’s direction is ‘straightforward’, but proceeding ‘with care’ is the best approach.

The US economy remains ‘remarkably stable’.

Prices face upward pressure from resilient demand and widespread cost increases.

Passing on higher costs will be the aim, firms say.

With ‘remarkable’ earnings, businesses are doing well.

Healthy loan pipelines are being reported by bankers, with demand reaching well beyond artificial intelligence.

There is still little sign of significant layoffs.

Reports I am hearing point to widespread cost pressures.

Despite ‘bleak’ sentiment, consumers are still spending, underpinned by a resilient labour market.