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

ME News update, on April 1 (UTC+8), Richmond Fed Chair Borkin said that businesses’ current behavior still shows that they believe the high oil prices are only a short-term disruption, and there is currently almost no evidence that it has led consumers to cut spending or to change inflation expectations in a concerning way. Borkin said on Tuesday: “My instinct is that people are still looking at this issue from a short-term perspective. Gasoline spending has clearly risen substantially, but other spending still looks quite healthy.” Borkin said that there are scenarios that could drive the Federal Reserve’s policy in any direction, but in his view, the logic for further rate hikes is likely to center on inflation expectations rising—circumstances that would force policymakers to demonstrate their commitment to keeping inflation near the 2% target. He said: “The case for raising rates will revolve around inflation expectations eventually beginning to move upward. But I don’t see that break through at the moment.” By contrast, the scenario for cutting rates would involve inflation quickly falling from a level about 1 percentage point above the target back to 2%, or a weakening in the job market that would need rate cuts to provide support. (Jin10) (Source: ODAILY)