Federal Reserve's Barkin: The logic behind rate hikes may mainly revolve around rising inflation expectations

Odaily Planet Daily News: Richmond Fed Chair Bostic said that firms’ current behavior still shows they believe high oil prices are only a short-term disruption, and there is currently virtually no evidence that this has led consumers to cut spending or to change inflation expectations in a worrying way. Bostic said Tuesday, “My instinct is that people are still looking at this issue through a short-term lens. Gasoline spending has clearly risen substantially, but other spending still looks fairly healthy.” Bostic said that there are scenarios that could push Federal Reserve policy to change in any direction, but in his view, the logic for further rate hikes may be mainly tied to rising inflation expectations—circumstances that would require policymakers to demonstrate their commitment to keeping inflation near the 2% target. He said, “The case for a rate hike will hinge on the point where inflation expectations ultimately start moving upward. But I’m not seeing that breakthrough right now.” By contrast, a rate-cut scenario would include inflation rapidly falling from about 1 percentage point above the target back to 2%, or a weakening labor market that would need support through rate cuts. (Jin10)