(Bloomberg) -- Federal Reserve Bank of Richmond President Tom Barkin noted progress on inflation and signs that pricing power is being wrung out of the economy, though he said it is too early for the central bank to declare victory.
“It remains difficult to say that the inflation battle has yet been won,” Barkin said in prepared remarks Wednesday in Wilmington, North Carolina at a conference organized by the University of North Carolina Wilmington. “There is still work to do on inflation.”
Barkin voted with the majority of the Federal Open Market Committee on Sept. 18 to lower the benchmark lending rate by half of a percentage point to a range of 4.75% to 5%. He described the cut as a “recalibration,” the same word used by Fed Chair Jerome Powell during his press conference following the policy meeting.
Three-month core inflation is just above the Fed’s 2% target at 2.1%, Barkin said, but added that he doesn’t expect the 12-month rate to “drop much further until 2025, as we are still lapping low inflation numbers from late last year.”
Barkin cited risks to both sides of the inflation mandate. The economy could continue to enjoy positive supply-side influences such as increased labor force participation and productivity, helping to ease price pressures.
But “recent union actions or a pullback in labor supply” could drive wages higher, he said. “Deglobalization could increase import prices. The conflict in the Middle East could worsen.”
Barkin said the labor market is in “good shape.” He noted that hiring has slowed but layoffs are also low. He said that condition is unlikely to persist, and said it could break either way. Profit pressures could force some companies to start reducing headcount while a pick-up in demand could create conditions where employers find themselves short of staff again.
Fed officials will see fresh labor market data Friday. The unemployment rate is forecast to hold steady at 4.2% in September while payrolls are expected to rise by 150,000.
“Victory means different things to different people, and — while we have made real progress — there remains significant uncertainty on both inflation and employment,” he said.
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