Invesitng.com — Richmond Federal Reserve bank president Thomas Barkin said Thursday that he expects tighter monetary policy to slow economic growth, but the hit to the labor market will be less severe than in previous tightening cycles as businesses remain reluctant to make mass layoffs and have been preparing for a downturn.
“I don’t think that’s going to have the kind of trauma on the labour market as It may historically have had because people are still very loath to fire workers that they spent a year, or year and a half trying to acquire,” Barkin told Bloomberg in an interview on Thursday, referring to lagged impact of the Fed’s 11 rate hikes so far.
The strength in the labor market, which aids economic growth and spending, has been thorn in the side of the Fed’s mission to bring down inflation.
“It’s very hard to imagine inflation settling, while the economy is growing significantly faster than trend,” Barkin said, though added that pace of economic growth seen in Q2 and Q3 is unlikely to persist.
“I don’t think the kind of growth we saw in the second third quarter feels likely to continue … it’s going to come off but how far of that, we’ll see.”
Layoffs in the labor market so far have mostly been in professional sectors, Barkin says, but “the skilled trades, the frontline workers, for the most part aren’t being affected because people are really worried you’ll be able to find replacements should the economy come back.”
The Richmond Fed president said the last five months of core inflation data were “encouraging,” but suggested it was “too early” to know whether the Fed will need to raise rates again.
The remarks come just a day ahead of fresh inflation due Friday, expected to show that remained steady last month, and continued to slow in the 12 months through August.