Federal Reserve Bostic: The interest rate hike rationale mainly centers on rising inflation expectations, and there are currently no signs of a breakthrough

Gate News update, April 1, Richmond Fed Chair Barkin said on Tuesday that companies’ current behavior indicates they believe high oil prices are only a short-term disruption, with almost no evidence that this has led consumers to cut spending or to change inflation expectations in a concerning way. Barkin noted: “My instinct is that people are still looking at this issue through a short-term lens. Gasoline spending has clearly risen significantly, but other spending still looks fairly healthy.”

Barkin said there are scenarios now that could push the Federal Reserve’s policy in any direction. In his view, the logic for rate hikes may be mainly around inflation expectations rising—circumstances that would require policymakers to show that they are committed to keeping inflation near the 2% target. He said: “The case for rate hikes will center on the idea that inflation expectations will ultimately start trending upward. But I’m not seeing that break through right now.”

By contrast, a scenario for rate cuts would involve inflation quickly falling from roughly 1 percentage point above the current target to 2%, or the labor market weakening in a way that would need support through rate cuts.