Richmond Federal Reserve President Thomas Barkin said on Thursday that the uptick in U.S. Treasury yields does not, in his view, reflect rising inflation expectations or greater alarm over government deficits. Barkin said borrowing costs remain within what he called a reasonable range.
"I dont mark it up to inflation expectations," Barkin said, noting that despite a larger Treasury supply to finance deficits and smaller purchases from some big buyers such as China, debt auctions have continued to clear. He added that rates "are not out of the zone of reasonableness."
Barkin pointed to market measures of longer-term inflation expectations, which he said do not appear to have broken out. That observation underlies his view that the recent yield move is not primarily a signal that inflation is accelerating. At the same time, he said he is considering whether the balance of supply and demand in the long-term Treasury market has shifted given the scale of U.S. issuance.
On the employment side, Barkin said he finds recent job gains encouraging but cautioned about possible dislocations tied to artificial intelligence. He said it is not difficult to imagine that AI could ultimately lead to job losses, although he observed that employers outside the software sector are not yet cutting headcount because of the technology. Barkin also said it remains difficult to draw firm conclusions about the short-term versus long-term effects of AI on employment.
Reflecting on policy priorities, Barkin said he is uneasy about risks on both sides of the Federal Reserves dual mandate of price stability and maximum employment. He said he is not inclined to place disproportionate emphasis on either inflation or employment risks at this time and does not believe the current environment calls for strong forward guidance.
Additionally, Barkin said businesses today are considerably less confident about their ability to pass higher costs through to consumers by raising prices. He also noted that he met with Fed nominee Kevin Warsh on Tuesday to get acquainted and said he trusts Warsh as a leader.
Context and takeaways
- Barkin interprets the rise in yields as more related to market supply-demand dynamics than a jump in inflation expectations.
- Debt auctions have been successful even as Treasury issuance has increased and some major external buyers have reduced purchases.
- He is attentive to employment risks posed by AI while noting that most non-software employers have not yet reduced headcount for that reason.