Barkin signals rate cuts have cushioned jobs and inflation is cooling but still above target, keeping the Fed ready to act.
Richmond Federal Reserve Bank President Thomas Barkin, while making a public appearance on Tuesday, expressed concerns about inflation potentially reaccelerating and the labor market supply.
Rate Cuts Buy Time on Jobs? The Fed official said the cumulative 175-point rate cuts implemented over the last year and a half have taken out some insurance to support the labor market. This, according to the Fed official, would help the central bank complete the last mile to bring inflation back to target.
That said, Barkin also signaled the Fed’s readiness to respond as appropriate.
Economy Defies Odds: While weighing in on the economy, the central bank official highlighted the dynamics that shaped 2025, including geopolitical tensions, the transformational possibility of artificial intelligence (AI), and government policy changes like tariffs, immigration, the tax bill, deregulation, spending cuts, and the government shutdown.
Barkin noted that the economy remains resilient entering 2026, with GDP rising 4.4% quarter-over-quarter in the third quarter and consumer spending remaining healthy through the Fall. Labor market indicators, such as the jobless rate, remained low, and the jobless claims remained stable.
Pricing Pressure Contained…For Now? On inflation, the Fed president said the price consumption expenditure index has come off its peak and stabilized at 2.8% and near-term inflation expectations have fallen, suggesting more softening is likely. That said, Barkin is still wary of inflation. “And, while we’ve made a lot of progress on inflation, it remains above our target. That’s been the case since 2021,” he said. “I take this sustained miss seriously. That’s because I believe today’s inflation numbers, regardless of the “why,” significantly influence tomorrow’s inflation.”
Key Concern: Barkin called labor supply a key concern and weighed in on the effect of shrinking labor supply growth due to lower net migration and potential reduction in labor force participation amid an aging population and declining fertility rate.
Takeaways For Futures Traders: Barkin’s hawkish-leaning comments could prove to be slightly negative for risky bets such as index futures. The E-mini S&P 500 futures fell on Tuesday, although the E-mini Russell 2000 Index futures, which are more sensitive to interest rates, rallied.
A lack of rate cuts could push bond prices lower, pushing yields higher, with shorter-term yields rising faster than those of longer-term counterparts. The 10-year T-note futures fell modestly, reflecting the drop in the corresponding T-note yield.
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