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Fed's Barkin sees no case for a rate hike or cut

Kitco News

NEW YORK - Strong U.S. economic growth and restrained inflation mean there is no argument for a rate hike or cut right now, though business confidence is fragile, a Federal Reserve policymaker said on Wednesday.

“There’s not a strong case to push rates higher when inflation is under control; there’s not a strong case to move lower when growth remains healthy,” Federal Reserve Bank of Richmond President Thomas Barkin said in remarks prepared for delivery before the New York Association of Business Economists in Manhattan.

The Fed has kept rates on hold at their current 2.25-2.50% level this year, spooked by a slide in markets and questions about the sustainability of economic growth in light of issues including the U.S.-China trade conflict, which has hurt many businesses’ optimism about the future.

Inflation has been short of the Fed’s 2% goal, leaving the U.S. central bank in no hurry to hike rates. Markets are positioning for the possibility that the Fed’s next move is a cut.

Barkin said the business contacts in his regional bank’s district, which spans parts of the U.S. South and mid-Atlantic from South Carolina to Washington, see an economy that is “sound but not spectacular.”

Rising debt levels among U.S. businesses can bias how executives respond to bad news, causing them to potentially overreact to temporary market slides by hiring or slowing investment, he said.

While consumers have good income prospects and high savings, businesses do not feel they can raise prices and are anxious about the future as well as political polarization, Barkin said.

“I don’t discount the idea that we could talk ourselves into a recession,” he said.

But those businesses are not yet cutting back investments, jobs or discretionary spending, leading Barkin to believe that the economy is “sound” even if “confidence - especially business confidence - is fragile.”

Reporting by Trevor Hunnicutt; Editing by Meredith Mazzilli

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