The timing and pace of any changes to interest rates this year — including possible rate hikes — will depend on the economic data, Richmond Federal Reserve Bank President Tom Barkin said Wednesday.
Conviction about whether inflation continues to ease and whether the broader economy continues to fly smoothly “will determine the pace and timing of any changes in rates,” Barkin said in a speech to the chamber of commerce in Raleigh, N.C.
“There’s no autopilot,” Barkin said, urging the audience to “buckle up.”
“So I can’t give more guidance from the flight deck. Forecasting is difficult, and conditions are ever-evolving,” Barkin said.
In his prepared remarks, Barkin said a soft landing, a scenario in which inflation continues to come down and the economy continues to grow, “is increasingly conceivable but in no way inevitable.”
The potential for more rate hikes remains on the table, he said, especially if the U.S. economy continues to defy expectations with strong growth in 2024.
Other risks to a soft landing include a sudden slowdown in the economy, more turbulence from geopolitics and markets, and whether inflation in the service and shelter sectors stays high, he said.
Barkin said that “too many” of his business contacts were still planning above-normal price increases.
“After decades without pricing power, businesses, especially those facing margin pressure, won’t want to back down from raising prices until their customers or competitors force their hands,” Barkin said.
“If that’s the case, I fear more will have to happen on the demand side, whether organically or through Fed action, to convince price setters that the inflation era is over,” he added.
Stocks DJIA SPX opened lower on Wednesday. The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose to close to 4% in early trading for the first time since the Fed’s last policy meeting, in mid-December. Minutes from that meeting will be released at 2 p.m. Eastern time Wednesday.
Barkin noted that the Fed’s December meeting “got a lot of attention.” After the meeting, markets moved to price in 150 basis points of rate cuts in 2024.
Read: How December Fed minutes could shake up investors’ rate-cut expectations
Barkin said Fed officials actually have a “pretty wide” range of estimates for how many cuts might happen — from no cuts to as many as six. The 19 top Fed officials expect inflation to settle without additional hikes, he noted.
