Fed Governor Michael Barr said in a speech overnight that monetary policy remains “modestly restrictive”, and supported the decision to lower the federal funds rate by 25 bps at the September meeting. He said the move brought the stance “a bit closer toward neutral,” but emphasized that further adjustments should depend on new data and the evolving balance of risks.
Barr noted that since the September meeting, consumer spending has surprised to the upside, with data showing activity on a “notably stronger trajectory” than previously thought. That, he said, prompted most observers to revise up forecasts for GDP growth through the remainder of the year. Inflation, meanwhile, “moved up as expected,” with core PCE remaining well above the 2% target.
The Fed governor cautioned that “considerable uncertainty” continues to cloud the outlook. Slower payroll growth could be a “harbinger of worse to come,” he said, though it might also stabilize given the low unemployment rate and solid growth backdrop. On inflation, he warned that tariffs could have only a modest effect on prices—or, conversely, trigger renewed price pressures if expectations begin to rise.
Barr concluded that the FOMC should remain “cautious” about adjusting policy until more evidence clarifies the direction of the economy. “If we see inflation moving further away from our target, it may be necessary to keep policy at least modestly restrictive for longer,” he said. “If we see heightened risks in the labor market, we may need to move more quickly to ease policy.”
