Fed leans toward more rate cuts, awaits policy impacts: Barkin

Investing.com -- The U.S. Federal Reserve is considering additional rate cuts this year, according to Richmond Fed President Tom Barkin. However, the potential effects of new policy initiatives from the Trump administration, including tariffs, immigration, and regulations, need to be better understood.

Barkin, speaking on Bloomberg Television on Wednesday, noted the current uncertainty in areas such as deregulation, immigration, energy policy, and geopolitics. Despite these uncertainties, Barkin expressed a favorable view toward further rate cuts in light of the expected decrease in inflation and the continued growth of the economy.

The central bank has chosen to maintain its current interest rate policy while it gathers more data on jobs and inflation. It is also waiting to see the outcomes of policy initiatives from the Trump administration, which may be difficult to predict.

Over a recent weekend, President Donald Trump shifted from proposing 25% tariffs on major trading partners Mexico and Canada, to a month-long delay. Some economists believe this delay is likely to be extended following negotiations among the countries.

The present policy interest rate, which ranges from 4.25% to 4.50%, is considered restrictive. Barkin believes it should continue to lower inflation towards the Fed’s 2% target from current levels, which are about half a point above the target.

However, Barkin emphasized the necessity of patience, a sentiment echoed by other Fed officials this week, including vice chair Philip Jefferson.

In his remarks, Barkin also outlined three levels of uncertainty associated with tariffs. These include the level of tariffs on different countries, the response from countries and companies, and the impact on consumers. He also highlighted the importance of considering the experiences of 2018 and 2019 when assessing the potential effects of tariffs.

During this period, studies suggest that tariffs contributed to 30-40 basis points of inflation in an era of low inflation. Consumers maintained their spending habits, businesses continued to hire, but large businesses reduced their investments.

Barkin also noted that while globalization has been disinflationary, the potential de-globalization could pose a challenge to U.S. growth. He emphasized that the Federal Reserve is frequently targeted by cyberattacks, stressing the importance of continually updating security protocols.

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