“Interest Rates Should Normalize as the Economy Normalizes”

FED member Thomas Barkin shared his views on the current situation of the US economy. Barkin stated that the FED should normalize interest rates as the economy returns to normal.

Barkin underlined the importance of the first quarter, as businesses tend to give raises at the beginning of the year.

Barkin noted that companies are still trying to raise prices at higher rates than pre-COVID levels. Barkin said it is necessary to observe how consumers and competitors react to these changes. Barkin also stated that there is uncertainty about the path inflation will take, given that progress over the last six months has been largely dependent on goods.

According to Barkin, the labor market is on a steady softening trend. Barkin believes a renewed acceleration looks less likely at this point. Despite this, consumer demand remains healthy, although it has slowed, according to Barkin.

Barkin stated that he does not see any harm in reducing interest rates to more normal levels as confidence that inflation is falling increases. However, he said it was difficult to determine the real interest rate due to uncertainty about the neutral rate and expected inflation.

Barkin concluded by saying that the labor market has normalized nicely, given the interest rate increases approved by the FED.

*This is not investment advice.