The best policy for the Federal Reserve going forward is not to react when there is a weak month of economic growth but to get inflation under control, said Richmond Federal Reserve President Tom Barkin on Tuesday.
Barkin said that overreacting to weak growth was a hallmark of the failed policy in the early 1970s that forced former Fed Chairman Paul Volcker to slam on the brakes and bring inflation under control in 1979-1980.
“One of the things that those who studied the 1970s would say is what you shouldn’t do is restrict, stimulate, restrict, stimulate, restrict, stimulate,” Barkin said during a speech to the Rotary Club of Charlotte.
“Every time you had a weak month in the 1970s, somebody stimulated again, That is probably not the right policy,” Barkin said.
Many analysts think it will take time for high inflation to come down and the Fed will be under pressure to ease up on its its effort to raise its policy rate to bring inflation down. The June U.S. consumer price index data is due for release Wednesday.
Indeed, the yield on the 10-year Treasury note
has fallen back under 3% on fears that the Fed will overshoot on its interest rate hikes and slow economic growth as a result. Investors in Fed funds futures markets are now pricing in interest-rate cuts as soon as next year.