Jim Thorne, chief market strategist at Wellington Altus Private Wealth, argues that the Fed needs to get inflation down to neutral levels quickly.
In newly released comments, Richmond Fed President Thomas Barkin said U.S. companies’ current approach to hiring decisions — hiring fewer people and firing fewer — is likely short-lived, and he noted the risk that companies will resort to layoffs if the economy weakens.
Concerns about the job market have grown at the Federal Reserve in recent weeks, a key reason why Fed Chairman Jerome Powell said in a speech on Friday that interest rates needed to be cut to prevent the U.S. unemployment rate from falling further than desired.
That hasn’t happened yet as companies are becoming more conservative in hiring but reluctant to lay off employees, Barkin said on Bloomberg’s “Odd Lot” podcast, recorded at the Federal Reserve’s economic symposium on Friday and released on Monday.
But “either the demand will continue and people will start hiring again, or people will start laying off workers,” Barkin said. “We’re at a low point in both hiring and layoffs, and I don’t see that continuing for long. It’s either going to move left or it’s going to move right.”
Fed’s actions have a bigger impact on markets than its words in fighting inflation, study finds
Federal Reserve Bank of Richmond President Thomas Barkin warned that U.S. companies, which have relied on low-hiring and low-firing policies in recent years, could turn to layoffs. (Photographer: Valerie Plesch/Bloomberg via Getty Images/Getty Images)
The unemployment rate has risen steadily this year and is now at 4.3 percent, but this is the result of a combination of slowing hiring and an increase in the number of people looking for work, while layoffs remain low.
Guarding against downside risks to the labor market is one reason the Fed is almost certain to start cutting interest rates when it meets on Sept. 17-18.
Fed Chairman Powell: ‘Time to cut interest rates’
The Federal Reserve is expected to cut interest rates at its September meeting. (Photographer: Ting Sheng/Bloomberg via Getty Images/Getty Images)
Barkin said the Fed is taking a “trial and error” approach to cutting rates, appearing to suggest he favors an initial 25-tenths of a percentage point cut rather than a larger 1/2 percentage point reduction that some analysts say would be appropriate. With inflation still 1/2 percentage point above the Fed’s 2% target, he noted that a rate cut could boost demand for housing and other items, leading to faster inflation over the longer term.
But Barkin, a voting member of the Fed’s interest rate-setting policy committee this year, said he has growing confidence in easing price pressures, especially as disinflation becomes more evident more broadly than just the goods sector.
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“We’ve now had four consecutive months of very low readings and they’re low across all commodities, whereas six months ago, eight months ago it was just commodities,” Barkin said. “The fear that inflation will pick up again has certainly subsided.”
