Richmond Fed's Barkin Sees Risks Amid Solid U.S. Growth

(Bloomberg) -- Federal Reserve Bank of Richmond President Tom Barkin said the U.S. economy is firm though there are risks of supply constraints, geopolitical instability and market volatility.

“Growth is solid, unemployment is low, and inflation is at target,’’ Barkin said at the West Virginia Economic Outlook Conference in Charleston, West Virginia. “Trade disputes are making people more nervous than they did a few months ago.”

Barkin voted last week with the Federal Open Market Committee to raise the target range for the benchmark lending rate to 2 percent to 2.25 percent.

The U.S. economy expanded at a 2.5 percent annual rate in the third quarter, according to a New York Fed nowcast estimate. Inflation is running around the Fed’s 2 percent target, and unemployment is low at 3.9 percent in August.

“There’s a sense that we’re in a deregulatory moment. People have jobs, and the markets are strong,” he said. “Overall, it’s starting to feel like we’ve got some tailwinds rather than headwinds.”

Barkin didn’t explicitly discuss his outlook for monetary policy in the text of his remarks. The Richmond Fed chief said he is watching five indicators for signs of the economy’s health:

• Business investment: “It’s a strong indicator of continued confidence -- firms aren’t going to invest in the future unless they feel good about where we’re headed. This, in my view, is the major challenge presented by the discussions we’re having right now about tariffs,’’ Barkin said.
• Productivity: While productivity was strong in the second quarter, at 2.9 percent, if it was an aberration and returns to a slower trend “it could limit’’ overall growth, he said.
• Consumer durable goods. Barkin said they are a key indicator of core inflation.
• Compensation for job stayers. As competition heats up between companies for talent, wages could rise, he said. “We’re not really seeing that competition yet.’’
• Yield curve. As the spread between short- and long-term rates narrows, “it could suggest markets are losing confidence in the outlook,’’ Barkin said, noting that past inversions of the yield curve has “predicted seven of the last six recessions.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Randall Woods

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