Richmond Fed President Tom Barkin brought a dose of reality to market hopes for interest rate cuts on Wednesday. He pointed out that the Fed is generally bracing for negative economic impacts stemming from both sides of the US’s ongoing trade disputes.

Key highlights

He suggested tariff-related price increases could start as early as June.

He noted businesses are currently grappling with uncertain confidence levels.

He emphasized that rising prices necessitate a cautious approach from the Fed.

He warned that tariffs are expected to negatively affect both inflation and employment.

“I’m concerned we might be approaching a point where consumers decide to reduce spending; thankfully, we haven’t seen that happen yet,” he stated.

He acknowledged that consumers are still spending, but this is something the Fed is carefully monitoring.

He doesn’t believe a correction in the equity market is the primary driver for consumers to pull back.

He observed a decrease in air travel, but noted that everyday consumer spending remains strong.

He explained that if the economy experiences both higher inflation and higher unemployment simultaneously, the Fed would respond thoughtfully and deliberately.