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Fed’s Barkin says rate moves depend on further progress on inflation and economic outlook

The timing and pace of any changes to interest rates this year will depend on the economic data, Richmond Federal Reserve President Tom Barkin said Wednesday.

Conviction on whether inflation is continuing to come down 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, NC.

“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, where 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 the soft landing are a sudden slowdown in the economy, more turbulence from geopolitics and markets, and whether service and shelter inflation stays stubbornly high, the Richmond Fed president 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 were set to open lower on Wednesday. The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose 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.

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