Federal Reserve's Barkin: The logic behind rate hikes may mainly revolve around rising inflation expectations

ME News message, April 1 (UTC+8). Richmond Fed President Bostic said that businesses’ current behavior still shows that they believe high oil prices are only a short-term disruption, and there is currently almost no evidence that this has led consumers to cut spending or to change their inflation expectations in a concerning way. On Tuesday, Bostic said: “My gut feeling is that people are still looking at this issue from a short-term perspective. Gasoline spending is clearly up substantially, but other spending still looks fairly healthy.” Bostic said there are scenarios that could push the Federal Reserve’s policy in any direction, but in his view, the logic for a rate hike would likely focus mainly on inflation expectations rising—something that would force policymakers to demonstrate that they are committed to keeping inflation near the 2% target. He said: “The case for raising rates will center on the idea that inflation expectations will eventually start moving higher. But I don’t see that kind of breakthrough at the moment.” By contrast, the scenario for cutting rates would include inflation quickly dropping from its current level, which is about 1 percentage point above the target, back to 2%, or the labor market weakening—both of which would require support through rate cuts. (Jin10) (Source: ODAILY)