Federal Reserve's Barkin: The logic behind rate hikes may mainly revolve around rising inflation expectations

ME News update, April 1 (UTC+8), Richmond Fed Chair Bostic said that businesses’ current behavior still shows that they believe high oil prices are only a temporary disruption, and there is currently little evidence that this has led consumers to cut spending or to alter inflation expectations in a worrying way. Bostic said Tuesday: “My gut feeling is that everyone is still looking at this issue from a short-term perspective. Gasoline spending is obviously up sharply, but other spending still looks fairly healthy.” Bostic said that there are scenarios that could push the Federal Reserve’s policy in either direction, but in his view, the logic for rate hikes may be mainly about inflation expectations rising, a situation that would force policymakers to demonstrate their commitment to keeping inflation near the 2% target. He said: “The case for rate hikes will be built around the idea that inflation expectations will eventually begin to move upward. But I don’t see that break through right now.” By contrast, the scenario for rate cuts would include inflation quickly falling from roughly 1 percentage point above the target back to 2%, or weakness in the labor market that would require support through rate cuts. (Jin10) (Source: ODAILY)