The September cut was justified because fares were not “out of sync”

Federal Reserve (Fed) Bank of Richmond President Tom Barkin on Wednesday spoke about the Fed’s recent moves on interest rates and warned that the fight against inflation may not be over as risks remain.

Key highlights

The 50 BPS rate cut in September was justified as rates were “out of sync” with falling inflation and the unemployment rate close to its sustainable level.

The Fed can’t declare an end to the inflation battle. I expect little further decline in the Core PCE price index until next year.

50 BPS of cuts, presented as the median projection of Fed policymakers for the rest of this year, would also cut a small portion of marginal rates.

I’m watching closely how lower interest rates impact home and auto sales to see if demand risks outstripping supply.

Recent labor actions and geopolitical conflicts are also among the inflation risks.

While the labor market with low hiring and low layoffs could persist, the demand for workers could also increase if demand expands.

The pace and magnitude of the rate-cutting cycle requires the Fed to keep an eye on how the economy and inflation are developing.

Fed interest rate cuts are set to recalibrate to a less restrictive stance.