Richmond Federal Reserve Bank President Barkin indicated that the Federal Reserve's efforts to bring inflation back to its 2% target might take longer than expected, which will likely limit the extent of interest rate cuts. He expressed support for the Fed's recent decision to cut rates by 50 basis points and agreed that the benchmark rate could drop another 50 basis points by year-end, depending on inflation trends.
Barkin voiced concerns that inflation may persist into next year, preventing the Fed from cutting rates as much as investors and some of his colleagues expect. He warned that the benchmark rate might remain below the "neutral" level anticipated by many policymakers. He highlighted that in the upcoming months to the latter half of 2025, inflation poses a bigger challenge than the labor market, which remains robust and tight.
Last month, the Fed lowered its benchmark rate to 4.75%-5.00%, with new economic forecasts suggesting rates may dip to around 2.9% by 2025-2026, considered a "neutral" level that neither spurs nor hinders spending and investment. The Fed is expected to cut rates by 25 basis points at the upcoming meeting. Barkin views this move as a "reasonable path," provided unemployment and inflation rates remain stable, as he anticipates.
