According to a Reuters report, Fed Governor Michael Barr said on Tuesday that based on current economic conditions and data in hand, it would likely be appropriate to hold rates steady for some time.
- Barr said that he would like to see evidence that goods price inflation is sustainably retreating before considering reducing the policy rate further.
- Barr noted that while the labor market had stabilized, it was still vulnerable to shocks even as hiring was in a “delicate balance.”
- He also commented on the role of AI on the labor market, noting that AI adoption could also impact Fed policy decisions, while the boom would unlikely be a reason for lowering policy rates.
Federal Reserve Governor Michael Barr reportedly sees it appropriate for the central bank to hold interest rates steady until there is further clarity on goods price inflation.
According to a report from Reuters, Barr on Tuesday said in remarks prepared for a New York Association for Business Economics gathering that present data indicates it would be better to pause any changes to the key interest rates.
“Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks,” Barr said, as per the report.
On Wednesday, the Federal Reserve is expected to publish minutes from its January Federal Open Market Committee meeting, when it decided to keep rates steady at 3.50% – 3.75%.
Eyes On Data
Barr said that it would be a “prudent course” for the country’s monetary policy to take the time necessary to assess economic conditions before further changes.
“I would like to see evidence that goods price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable,” he reportedly said.
The Fed governor reasoned that while tariff-driven pressures on inflation may ease, price pressures would remain a concern.“ I see the risk of persistent inflation above our 2% target as significant, which means we need to remain vigilant,” he said, according to the Reuters report.
AI’s Impact On Jobs
Barr noted that while the labor market had stabilized, it was still vulnerable to shocks even as hiring was in a “delicate balance.”
He also commented on the role of artificial intelligence on the labor market, stating that while it did appear to be having some impact, it was not yet a big factor affecting employment levels.
Barr said that AI adoption had resulted in reallocation within companies instead of large-scale layoffs. However, he warned that there was a need to be prepared for the possibility of “serious short-term disruptions in the labor market” although its long-term gains were likely to be quite favorable.
He noted that AI adoption could also impact Fed policy decisions, adding that the AI boom would unlikely to be a reason for lowering policy rates.
Meanwhile, U.S. equities were mixed in Tuesday’s opening trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.01%, the Invesco QQQ Trust ETF (QQQ) declined 0.09%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.05%. The tech-heavy Nasdaq-100 declined 0.18%.
On Stocktwits, retail sentiment around the S&P 500 ETF was in the ‘bearish’ territory.
The iShares 20+ Year Treasury Bond ETF (TLT) was up by 0.13% at the time of writing, while the iShares 7-10 Year Treasury Bond ETF (IEF) fell 0.05%.
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