Visa The Embedded Lending Opportunity April 2024 Banner

Fed’s Michael Barr Uncertain If Economy Can Have Soft Landing

It’s still too early to determine if the economy can have a soft landing, Michael Barr, vice chair for supervision at the Federal Reserve, said Wednesday (Feb. 14).

Speaking at the National Association for Business Economics conference, Barr discussed the United States’ path to achieving 2% inflation, Reuters reported Wednesday.

Barr acknowledged the difficulties that lie ahead, emphasizing the need to restore price stability without negatively impacting jobs or economic growth, according to the report.

Barr highlighted one of the key challenges the Fed faces: deciding how long to maintain the current target rate of interest, which ranges from 5.25% to 5.5%, the report said. He urged caution in assessing progress, stating that the central bank needs to see consistent positive data before considering a reduction in the federal funds rate.

Recent data showing higher-than-expected price increases in January served as a reminder that the journey towards 2% inflation may not be without obstacles, per the report. Consumer prices rose at a yearly rate of 3.1%, with core inflation measuring 3.9%, primarily driven by rising shelter costs.

Barr acknowledged the unique challenges posed by the current situation, which began during the coronavirus pandemic, which further complicates the decision-making process, according to the report.

Addressing concerns about potential declines in commercial office building values and their impact on banks with loans on those properties, Barr downplayed the immediate risk, per the report. He said that any issues arising from this situation would unfold gradually and would not pose an acute problem for the financial sector.

Barr also said that the overall banking system is strong, citing the improved state compared to last spring when Silicon Valley Bank failed, leading to fears of a broader credit crunch, the report said.

Barr also mentioned that the Federal Reserve is closely monitoring markets as it continues to reduce its asset holdings, per the report. The goal is to ensure that banks can easily access reserves. Detailed discussions about the future of the balance sheet are expected to commence soon.

Barr’s comments come two days after the Federal Reserve Bank of New York’s Center for Microeconomic Data reported that consumers’ median inflation expectations remain unchanged at the one-year and five-year ahead horizons, while that metric declined at the three-year mark.