Interest rate cut bubble bath? Fed officials hawkish "may need to raise interest rates to curb inflation reversal"

Thomas Barkin, president of the Federal Reserve Bank of Richmond, emphasized in a speech on Tuesday that as economic uncertainty rises, the Fed should maintain a "moderate constraint" on monetary policy, and warned that if future efforts to suppress inflation turn into continued headwinds, the Fed may have to raise interest rates in response. (Background: Fed fears tariff impact on inflation and calls for "gradual rate cuts", Fed signals: Balance sheet reduction may slow down or pause) (Background: Wall Street Journal criticizes: Inflation has risen for 3 consecutive months, Trump initiates tariff war and calls for rate cuts, which is chaotic) A Fed official reiterated a hawkish signal on the pace of rate cuts on Monday, Thomas Barkin, president of the Federal Reserve Bank of Richmond, talked about inflation in a speech on the 25th, stating that the U.S. Central Bank must maintain a firm resolve in combating inflation and pointed out the risks of persistent headwinds in inflation, which could lead the Fed to adopt a rate hike policy in response. Barkin stressed in the speech that under the backdrop of increasing overall economic uncertainty, it is meaningful to maintain a "moderate constraint" on monetary policy: The current labor market conditions remain robust, but the inflation rate is still slightly high. It is meaningful to maintain a moderate constraint until we are more confident that inflation will return to the 2% target. I know that the fight against inflation is a long-term process, but we must remain firm. We realized in the 1970s that if we suppress inflation too early, it will reappear. No one is willing to pay that price. Trump's policy uncertainty makes the Fed lean towards "wait and see" Barkin emphasized the challenges that "uncertainty" brings to the Fed, including geopolitical conflicts, natural disasters, especially how policy changes in Washington will affect the economy, including tariffs, regulatory relaxations, changes in immigration policy, energy production, and changes in tax and expenditure. He pointed out that although history has given us some guidance, it is not yet clear how applicable policy changes are to the current environment. He observed that the economic analysis of Trump's tariff policy in his first term in 2018 concluded that inflation rose by about 30 basis points. "But this time the policy will not be exactly the same, and we do not know if recent inflation experiences will exacerbate or alleviate the impact this time." In response, he admitted: It is difficult to make significant changes in monetary policy in the face of such increased uncertainty. I would rather "wait and see how this uncertainty develops and how the economy responds." If efforts to suppress inflation turn into headwinds, rate hikes may be necessary. Furthermore, Barkin also stated that the Fed has been in a favorable position to suppress inflation for many years, but in recent years, some factors have made the direction less clear. He listed factors such as the pandemic, geopolitical conflicts, tariffs, U.S. debt deficits, aging population, labor shortages, immigration flows, etc., which may exert upward pressure on prices and inflation in the long term. All these trends indicate that we may see headwinds in inflation replacing tailwinds. When we try to end the fight against inflation, all these uncertainties require us to be cautious. If headwinds persist, we may need to use (rate hike) policies to go against the headwinds. Extended Reading: CPI Breaks》10-year U.S. Treasury bond yields surged to 4.66%, the largest increase this year, Fed may only cut interest rates once this year? Fed not in a hurry to cut rates Barkin's latest remarks also confirmed that most Fed officials are currently "quite cautious" about the pace of rate cuts. The minutes of the Fed's January meeting released recently showed that Fed policymakers are concerned about the impact of Trump's tariff policy on inflation and are inclined to adopt a wait-and-see approach. They need to see more evidence that inflation is slowing down before considering further rate cuts. Fed Chairman Powell also reiterated the stance of "not in a hurry to cut rates" several times during his congressional hearings this month, causing concerns in the market that the Fed will postpone further rate cuts and keep interest rates at the high level of 4.25% to 4.5% for a longer period. The CME Fed Watch tool shows that the market currently expects the Fed to resume rate cuts in June and may cut rates again in September, betting on two more rate cut opportunities this year. The current market is waiting for the release of the Personal Consumption Expenditures Price Index (PCE) this Friday to see if this inflation indicator favored by the Fed can smoothly decline, allowing the Fed to reexamine inflation and future policy paths from a new perspective. Source: CME Fed Watch Tool Related Reports Former U.S. Treasury Secretary Summers warns: Uncontrolled inflation may erupt again, this round of Fed rate cuts may have ended Fed stops rate cuts? Fed officials say "strong employment, inflation close to 2%" has reached a neutral Interest Rate Fed signals: Inflation is easing"; Market expects Fed to cut rates as early as June Powell puts up a hawkish stance: Fed "may need to raise rates to suppress inflation reversal" This article was first published on BlockTempo, the most influential blockchain news media in the dynamic blockchain trend.