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28.06.2024

Richmond Fed president Barkin: The tightening will eventually slow the economy further

Richmond Federal Reserve Bank president Thomas Barkin acknowledged on Friday that the U.S. economy has been much more resilient to interest rate increases than most expected. "Most anticipated we would be cutting rates by now, but that has not yet been the case," he added.

The official, however, highlighted that he believes there are still lags to policy transmission playing out and that all the tightening will eventually slow the economy further. "Monetary policy famously works with 'long and variable lags'," he noted.

In Barkin's opinion, the fact that those lags have been longer than expected might be due to many factors such as labour hoarding, excess savings, delayed exposure to interest rate hikes and newfound pricing power, or it might indicate that the Fed's rate hikes aren’t constraining the economy as much as the policymakers think.

Also, Barkin admitted that agility is key given that policymakers get new information every day and must adjust accordingly.

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