Fed's Barkin (2027 Voter) says even before oil shock, progress on inflation was at risk of stalling, rates should be on hold; war and fast changes due to AI have clouded the economic outlook
Rates:
- Prudent to hold interest rates steady and await more clarity on what the Fed should do next.
- Oil price spike makes rate cuts unlikely this year.
Inflation:
- Will be watching inflation and expectations data carefully.
- Even before oil shock, progress on inflation was at risk of stalling.
Economy:
- “Fog” obscures economic outlook.
- Unemployment rate is low, but labor market feels “fragile”; firms see little wage pressure, multiple applicants for each job.
- Demand has been steady but continues to feel “narrow,” based on AI investment and wealthier households.
- Higher gasoline prices hit consumer sentiment, can crowd out other spending
Context
Barkin's comments suggest a cautious approach from the Fed, advocating for a steady interest rate amid uncertainties in inflation and economic outlook, particularly influenced by the recent oil price surge. This position highlights concerns about stalling inflation progress and a fragile labor market, which could lead to a postponement of any aggressive rate cuts this year, with implications for the USD and fixed-income markets.
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