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

ME News update: On April 1 (UTC+8), Richmond Fed Chair Barkin said that businesses’ current behavior still shows that they believe high oil prices are only a short-term disruption, and there is currently almost no evidence that this has caused consumers to cut spending or to change inflation expectations in a concerning way. Barkin said on Tuesday, “My gut feeling is that people are still looking at this issue from a short-term perspective. Gasoline spending has clearly risen substantially, but other spending still looks quite healthy.” Barkin said that there are scenarios that could push the Federal Reserve’s policy in any direction, but in his view, the logic for raising rates may be primarily centered on inflation expectations rising—this would force decision-makers to demonstrate their commitment to keeping inflation near the 2% target. He said, “The rationale for raising rates will revolve around the point when inflation expectations eventually begin to move upward. But at the moment, I’m not seeing that breakthrough.” By contrast, the scenario for cutting rates would include inflation quickly falling from about 1 percentage point above the current target back to 2%, or a weakening labor market that would need support through rate cuts. (Jin10) (Source: ODAILY)