July 11, 2019 / 7:46 PM / 7 days ago

Fed's Barkin leaves door open to 'insurance' cut

FILE PHOTO: Federal Reserve Bank of Richmond President Thomas Barkin poses during a break at a Dallas Fed conference on technology in Dallas, Texas, U.S., May 23, 2019. REUTERS/Ann Saphir

VICTOR, Idaho (Reuters) - Soft U.S. inflation is not a reason for cutting interest rates at this point, but a drop in confidence or growth could be, Richmond Federal Reserve Bank President Thomas Barkin told Reuters on Thursday.

“To me there are two possible logics for a cut - one which is around growth and confidence, it’s described by some as insurance, and I think I can see the case for that - we’ll see if the data supports that,” Barkin said in an interview on the sidelines of the Global Interdependence Center’s annual economic summit.

“There’s a case, if growth starts to falter or if confidence starts to drop meaningfully in a way that looks likely to affect growth, in saying: let’s get in front of the curve with the tools that we have,” he said. “What I will be assessing is whether growth has faltered or confidence has faltered in the way that I’ve just described.”

But a second rationale for cutting rates, he said, would be “for reasons of recentering inflation - that’s the one I think I’m less supportive of,” Barkin said. “The inflation one to me — the case doesn’t yet feel strong enough. But, maybe the data will change that.”

Inflation has been running at slightly lower than the Fed’s 2% goal, worrying some Fed officials. Data released this morning, which Barkin said he had not yet looked carefully at, showed it may be firming.

Fed Chair Jerome Powell in two days of testimony on Capitol Hill bolstered expectations that worries over trade tensions and faltering global growth have convinced many policymakers to support an interest-rate cut later this month when Fed rate-setters meet in Washington for their fifth regular meeting of 2019.

Minutes of the Fed’s last policy-setting meeting, in June, showed policymakers discussed a range of possible reasons to cut rates, including as insurance against worse-than-expected growth and to boost inflation expectations.

Barkin said he would be watching economic data released over the next three weeks, including consumer confidence, GDP growth, inflation, and retail spending, and would wait until the meeting itself before forming his view on what action, if any, should be taken. Barkin does not vote on rates this year, but takes part in the debate and discussion at regular policy meetings.

Reporting by Ann Saphir; editing by Diane Craft

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