Richmond Federal Reserve Chairman Thomas Barkin's latest comments indicate that he still believes there is upward inflation risk, but he supports lowering interest rates as the labor market cools down.

In an interview released on Monday, Baljkin claimed that the current inflation rate is still higher than the Fed's 2% target, but preventing a US economic recession and further weakness in the labor market has become more important, thus supporting a policy interest rate cut.

At last week's annual central bank meeting, Fed Chairman Powell made it clear: "We neither seek nor welcome further cooling of the labor market. It's time to adjust policy."

The next policy meeting of the Fed officials will be held on September 17th to 18th. It is widely expected that the Fed will lower the benchmark federal funds rate at this meeting. For financial markets and Fed officials, the key question is the magnitude of the rate cut in mid-September, which currently does not have a clear answer.

Baljkin pointed out that he tends to take a more cautious approach to interest rate cuts, gradually adjusting policies by observing market and economic reactions. This means he supports a 25 basis point rate cut, not the larger 50 basis points that some analysts have suggested.

Baljkin, who is a voting member of the Federal Open Market Committee (FOMC) this year, stated that there has been increased confidence in easing price pressures, especially as the anti-inflation process becomes more widespread, not just focused on commodities.

He added, "We have seen very low inflation readings for four consecutive months now, and the inflation growth rate of each sub-item is currently very low, while six or eight months ago, only the inflation growth rate of commodities slowed down. Therefore, concerns about the re-acceleration of inflation have certainly eased."

Regarding the labor market, Baljkin believes that the current practice of low hiring and low firing by US companies is unlikely to continue. He pointed out that if the economy continues to weaken, companies may resort to layoffs.

However, although companies have become more conservative in hiring employees, this situation has not yet arisen because companies are still unwilling to lay off employees.

Baljkin said, 'Either consumer demand continues to grow and companies will start hiring again, or you will start to see layoffs. We are in a low hiring, low firing mode. This doesn't feel like something that will continue, and changes will soon occur.'

Since the beginning of this year, the US unemployment rate has steadily risen to the current 4.3%, but this is due to a slowdown in hiring and more people starting to look for work, while the layoff rate remains low.

In addition, Baljkin also believes that geopolitical events, deglobalization, and real estate pose medium-term risks to inflation.

Aside from Baljkin, Atlanta Fed President Bostick also supports a 25 basis point interest rate cut. Bostick said that if inflation remains consistent with the cooling trend of the past few months, a 25 basis point rate cut 'may be the most appropriate way forward.'

Another Federal Reserve policymaker, Philadelphia Fed President Harker, also said last Friday that he expects the Fed to start with a 25 basis point rate cut and that he will be open to larger rate cuts if the labor market suddenly deteriorates.

Editor/ping