Latest tariff news hasn't changed outlook much
Economy shows benign outlook with focus on inflation and wage growth
Fed must maintain independence to reach 2% inflation target
Solid economic growth and resilient consumer consumption attributed to healthy household spending
Reduced employment growth reflects slow growth in labor supply and demand
Expects pace of hiring to increase as uncertainty fades and firms adjust to Tariff environment
Effects from Tariffs expected to become more pronounced as costs pass to consumers
Current market challenges include housing affordability and scarcity of childcare
Fed will use range of indicators to make decisions during data unavailability
We also heard from Richmond Fed President Barkin:
Rate cuts so far helped support job market while waiting on inflation "last mile"
Unemployment remains low by historical standards while inflation stays above target
Sustained inflation miss since 2021 is taken seriously regardless of the "why"
Expects economy to remain resilient in 2026 with stimulus from deregulation and tax reductions
Most firms are not currently doing layoffs at scale
Recent jump in productivity should help businesses bear higher input costs
Shrinking growth in labor supply is a top concern for the US economy
Stretched consumers are resisting attempts to pass along Tariff costs
Underlying dynamics support consumer spending
Both Collins and Barkin maintain a cautious but generally optimistic outlook on the US economy, emphasizing that while a "soft landing" is in sight, the final push to 2% inflation remains a challenge. Collins highlights the transition to a new tariff environment and notes that hiring may pick up once firms adjust, though she warns of increased costs for consumers. Barkin views recent interest rate cuts as "insurance" for the labor market and suggests that strong productivity and upcoming fiscal stimulus from tax refunds will support growth in 2026. Both officials agree that the labor market remains resilient despite a recent lack of official data during the government shutdown.
The market is pricing in a 54% chance of a rate cut in June, when Warsh takes over as Fed Chair.
