Strong U.S. economic growth and subdued inflation mean there is no strong argument for a rate hike or cut right now, though business confidence is fragile, a Federal Reserve policymaker said on Wednesday.
"There's not a strong case to push rates higher when inflation is under control; there's not a strong case to move lower when growth remains healthy," Richmond Fed President Thomas Barkin told the New York Association of Business Economists in Manhattan.
The Fed has kept rates on hold at their current 2.25-2.50% level this year, spooked by a slide in markets and fear that U.S.-China trade conflict and other issues could put an end to a decade of growth. Barkin said the trade dispute could cause businesses to be less confident and spend less.
Inflation, meanwhile, has been short of the Fed's 2% goal, leaving the U.S. central bank in no hurry to hike rates. Markets are pricing in an increasing chance that the Fed's next move is a cut.
Barkin is the latest in a series of Fed policymakers who have sounded skeptical about using a rate cut or other longer-term tweaks to bring inflation up to the Fed's target.
Business contacts in his regional bank's district, which spans parts of the U.S. South and mid-Atlantic from South Carolina to Washington, see an economy that is "sound but not spectacular," Barkin said.
Rising debt levels among U.S. businesses can bias how executives respond to bad news, causing them to potentially over-react to temporary market slides by investing less, he said.
While consumers have good income prospects and high savings, businesses do not feel they can raise prices and are anxious about the future as well as political polarization, Barkin said.
"I don't discount the idea that we could talk ourselves into a recession," he said.
But those businesses are not cutting back investments, jobs or discretionary spending yet, leading Barkin to believe that the economy is sound despite new data showing U.S. retail sales unexpectedly fell in April.
Still, Barkin told reporters the retail sales data was "not as good as I was hoping to see," and said in earlier remarks on Wednesday that "confidence - especially business confidence - is fragile."
Barkin said the Fed should work to support that confidence and consider simplifying communications to the public such as its summary of economic projections, a set of policymaker forecasts about the economy and Fed policy.
In March the Fed cut its median projection for any rate hikes this year. Barkin said that change in outlook alone moved market inflation expectations.
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