Fed officials warn of inflation risks under Mr. Trump

“I think inflation is at risk of accelerating, in the context of a strong economy and rising wage pressure,” Barkin said at the Maryland Bankers Association event in Baltimore city, January 3.

“At the Fed, I belong to the group that wants to keep interest rates high for longer. The other group is those who want to reduce it,” he added.

Barkin’s comments show disagreement among Fed officials over whether to continue lowering interest rates. They also have not agreed on their assessment of the economic environment – which is increasingly uncertain as President-elect Donald Trump prepares to take office later this month.

Barkin forecasts that this year’s economic outlook will remain positive. Consumption is strong and businesses are optimistic as the new government promises to reduce taxes and management regulations.

However, the impact of Mr. Trump’s immigration and trade policies could cause prices and labor wages to increase. The strength of the economy could cause inflation to continue at high levels. The labor market is also likely to see a recruitment boom.

Last year, the Fed reduced the reference interest rate three times, for a total of 100 basis points (1%). However, the personal expenditures price index (PCE) – the Fed’s preferred inflation measure – has been stuck in the 2.5-2.8% range for more than half a year.

At last month’s meeting, Fed officials wanted interest rate cuts to slow this year, with a total reduction of 50 basis points (0.5%). Investors even predict that this organization will keep interest rates unchanged at the meeting on January 28-29. The reference interest rate in the US is currently 4.25-4.5%.

Regarding the possibility of further interest rate cuts, Barkin said it depends on “confidence in inflation gradually returning to the 2% target”. Another scenario that could cause the Fed to reduce interest rates is that demand in the US economy weakens significantly.