Richmond Fed President: "US Soft Landing More Likely but Not Inevitable"

Thomas Barkin, President of the Richmond Federal Reserve Bank, stated on the 3rd (local time) that the possibility of a soft landing for the U.S. economy seems high, but it cannot be completely certain. He also added that the pace and timing of the Federal Reserve's (Fed) interest rate cuts this year depend on future economic indicators, including inflation.

In a speech that day, President Barkin said, "Demand, employment, and inflation all surged, but now it seems we are on the path back to normal." Holding voting rights at this year's Federal Open Market Committee (FOMC), he emphasized that while the "soft landing scenario, where inflation slows without a recession, is becoming conceivable," it is "not inevitable."

[Image source=Reuters Yonhap News]

He acknowledged that most officials expect rate cuts within the year but said that confidence in inflation and economic outlook "will determine the pace and timing of rate adjustments." He pointed out that whether disinflation continues will play a major role in future rate decisions.

However, he also expressed caution, stating, "The possibility of additional rate hikes still remains on the table." He highlighted economic risks expected this year, such as the recent sharp drop in long-term interest rates potentially stimulating excessive demand and causing inflation to rebound.

On that day, President Barkin did not provide specific rate forecasts. He reaffirmed that the Fed will act based on incoming data. He emphasized, "Forecasting is difficult, and conditions always change. Our approach is the same. Therefore, fasten your seatbelt. Even if a soft landing is expected, that is the appropriate protocol."

Earlier, at the Fed's last FOMC regular meeting in December last year, the benchmark interest rate was held steady for the third consecutive time, while a new dot plot suggested that three rate cuts could occur this year. Market expectations for a rate cut as early as March continue. According to the Chicago Mercantile Exchange (CME) FedWatch, the probability that the Fed will cut rates by at least 0.25 percentage points in March exceeds 70% in the federal funds (FF) futures market.