Richmond Fed President Tom Barkin said in a speech yesterday that “there’s not a strong case to push rates higher when inflation is under control”. At the same time “there’s not a strong case to move lower when growth remains healthy.” And, “it makes sense to remain patient” on monetary policy.
He noted that there was a short term sentiment shock at the end of last year and the beginning of this year. The significant drop in business, consumer and investor confidence was only fueled by “overreacting” to international uncertainty, financial market volatility and the government shutdown.
He added that business contacts told him the economy is “sound but not spectacular”. And, consumers are ready to resume spending once the environment settled. Though business recovery looks to be slower and they’re worried about political polarization and international markets and trade. Barkin noted “confidence—especially business confidence—is fragile.”
On monetary policy, he emphasized: “In a volatile environment, rate moves can indicate more than stimulation or restriction. They are also taken as signals on the health of the economy. Counter-intuitively, then, rate moves can send unintended messages.”
Full speech Sentiment and the Real Economy.
