Exclusive: Fed's Barkin: No rush to cut, can't dismiss inflation risks from tariffs

Reuters

20-06-2025

WASHINGTON, June 20 (Reuters) - Richmond Federal Reserve President Thomas Barkin said on Friday there's no rush to cut interest rates given the still-unresolved risk that new import taxes might raise inflation, and with the U.S. job market and consumer spending holding up.
"I don't think the data gives us any rush to cut...I am very conscious that we've not been at our inflation target for four years," Barkin said in a Reuters interview, noting that businesses in his district still expect price increases to come later in the year as new tariffs take effect, and the fact that import duties may rise even further in coming months.
In addition, he said, the jobless rate remains low at 4.2%, and firms don't appear on the cusp of major layoffs that would undercut the Fed's other goal of maintaining maximum employment.
Spending "is holding up fine. It's not frothy. It's not weak."
"Nothing is burning on either side such that it suggests there's a rush to act," Barkin said in his first public comments following a Fed meeting this week at which the central bank held its policy rate steady in the current range between 4.25% and 4.5%. "I'm not in a mood to ignore a spike in inflation were it to come...We'll have to see if it comes.
"I'm comfortable with where we are...Core inflation is still over target. Being modestly restrictive is a good way to address that."
Barkin's comments come at a moment of exaggerated uncertainty for the Fed and the U.S. economy, with tariffs already higher on some goods and potentially increasing again as soon as next month when the Trump administration has set a July 9 deadline for other nations to either strike trade deals with the U.S. or face possibly exorbitant taxes on their goods.
Only one deal has been struck so far, leaving the Fed in a muddle over what the final tax rates might be, and how they might be divided among foreign producers, U.S. importers, and the retail price charged to consumers. There's debate as well about whether any price impact will be a one-time shock or create more enduring inflation, and whether it could lead to supply chain issues that slow growth and increase joblessness.
The Trump administration says the tariffs will ultimately help the U.S. economy, and the president has demanded the Fed slash rates immediately.
New Fed economic projections this week, by contrast, anticipate slower growth and higher inflation.
Yet those projections also showed policymakers still anticipate rate cuts later in the year - a sign they do feel tariffs will raise prices but not in a persistent way.
Barkin noted the close split of opinion, with 10 policymakers seeing two or three quarter-point cuts this year, and nine seeing one or none.
"There are two perfectly reasonable views that are articulated there," Barkin said, based on expectations about the economy and inflation, and Fed officials' sense of which risks are more worrisome.
The median projection is for two quarter-point cuts this year.
But Barkin said that, in his mind, there are several compelling narratives for what might happen in coming months, from tariffs being passed along fully to consumers and raising prices, to businesses trying to absorb them through job cuts that raise unemployment.
With key tariff decisions still pending, "I don't have a lot of conviction about where (trade) policy is going to be. I just have to accept that," he said. "I also don't have conviction on what the impact is going to be on our mandate variables" of inflation and unemployment.
"There will be some inflationary impact. It's hard to know how much."
Businesses in his district, which runs from Maryland through South Carolina, tell him they are wrestling with the same questions, and remain largely on the sidelines when it comes to both capital investment and major labor market decisions, a static environment that could slow growth but also keep the unemployment rate relatively stable in a "low-hiring-low-firing" equilibrium.
Sentiment has improved since April, he said, when massive and since-delayed tariffs on China put businesses in a tailspin wondering about access to products and product inputs.
But the final outcome remains up in the air.
"I'd say the overwhelming reaction we're still getting is wait and see," Barkin said. "Wait and see is not put your foot on the brakes. It's just not put your foot in the gas."