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Fed’s Barkin: “Lots of time” before September rate decision must be made

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

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OCEAN CITY, Md., Aug 19 (Reuters) – U.S. central bank officials have “lots of time still” before they have to determine how large mortgage loan increase to approve at their Sept. 20-21 policy meeting, Richmond Federal Reserve President Thomas Barkin said on Friday.

Having an unusually long eight-week gap between meetings, the Fed still has “another bite” at data including jobs, inflation along with other reports that may shape whether it opts for a half-percentage-point upsurge in its benchmark overnight interest or perhaps a third consecutive 75-basis-point hike, Barkin told reporters on the sidelines of a Maryland Association of Counties conference in Ocean City, Md.

Given the effectiveness of inflation this season, with consumer prices increasing 8.5% on an annual basis in July, Barkin said the “urge” among central bankers was towards faster, front-loaded rate increases.

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Inflation, when calculated utilizing a separate measure preferred by the Fed is approximately 3 x the central bank’s 2% target, and policymakers have made taming the purchase price increases their priority.

But after among the fastest monetary policy shifts in decades, Barkin said the drive to improve rates must also be balanced with the impact rate hikes are experiencing on the economy, sufficient reason for sensitivity to the truth that the entire brunt of these effects could be delayed.

Up to now, he said, the recent release of strong retail sales, stronger-than-expected industrial production, and continued hiring shows the U.S. economy could have gained steam because the Fed’s July 26-27 meeting – instead of showed clear evidence that demand was cooling, as its policymakers feel is required to temper inflation.

“The underlying activity metrics … look more powerful than three weeks hence,” Barkin said.

Though recent inflation readings showed some slowing in the pace of price increases, he attributed that to changes in charges for cars and apparel which were “very bouncy.”

“It’s all a balance between just how much underlying strength will there be still throughout the market, and for that reason pressure on prices, and just how much of this pressure on prices is easing” due to other changes in supply or commodity markets, Barkin said.

“On the margin I tilt toward ‘get there faster,'” in moving rates to the restrictive level which will be had a need to cool demand and control prices, Barkin said. But “there’s still some question in my own mind about how exactly you balance that urge with the uncertainty concerning the underlying health of the economy in a global where our moves operate with a lag.”

The Fed has lifted its policy rate by 2.25 percentage points since March, including two 75-basis-point moves in June and July. Officials are anticipated to hike that rate by half of a percentage point or three-quarters of a share point the following month.

In the interim they’ll receive two more inflation reports, estimates of August payroll employment growth, and much more housing and consumer spending data.

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Reporting by Howard Schneider; Editing by Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Covers the U.S. Federal Reserve, monetary policy and the economy, a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics reporter and on the neighborhood staff of the Washington Post.

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