Federal Reserve Official: Interest Rates to Stay Put as Inflation Concerns Persist

A top Federal Reserve official says the central bank will maintain current interest rates for an extended period while monitoring inflation trends. Governor Michael Barr expressed concerns about persistent price pressures and wants to see clear evidence of declining goods prices before considering rate cuts.

A senior Federal Reserve official indicated Tuesday that the nation’s central bank plans to keep interest rates unchanged for an extended period as policymakers continue monitoring inflation trends and economic conditions.

Governor Michael Barr told members of the New York Association for Business Economics that current economic conditions support maintaining steady rates while officials evaluate incoming data and assess various risks to the economy.

“Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks,” Barr stated during his prepared remarks to the business group.

The Fed governor emphasized a cautious approach to future monetary policy decisions, explaining that officials need adequate time to evaluate changing economic circumstances.

“The prudent course for monetary policy right now is to take the time necessary to assess conditions as they evolve,” Barr explained. He added that he wants to observe “evidence that goods price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable.”

While Barr acknowledged expectations that tariff-related price pressures may eventually diminish, he stressed that inflation remains a significant concern for policymakers.

“There are many reasons to be concerned that inflation will remain elevated,” he stated. “I see the risk of persistent inflation above our 2% target as significant, which means we need to remain vigilant.”

Regarding employment conditions, Barr noted that recent economic indicators suggest the job market has found stability. However, he cautioned that the employment situation exists in a “delicate balance” and warned that “the labor market could be especially vulnerable to negative shocks.”

During 2024, the Federal Reserve reduced its benchmark interest rate target by 0.75 percentage points, bringing the range to between 3.5% and 3.75%. This action aimed to support a weakening job market while maintaining sufficient economic restraint to combat elevated inflation levels.

President Donald Trump’s trade policies have contributed to inflationary pressures, interrupting what had been a declining trend in price increases. Federal Reserve officials maintained their current rate target during their late January meeting and have generally shown reluctance to signal additional rate reductions.

Barr also addressed the growing influence of artificial intelligence technology on the economy during his speech. He noted that while AI appears to affect employment patterns, it hasn’t become a major factor in overall job losses.

“More broadly, rather than laying off workers, there is evidence that AI adoption is so far leading to re-allocation within firms,” Barr observed. Despite this current trend, he cautioned that “we should be prepared for the possibility that there might be serious short-term disruptions in the labor market, even if the long-term gains to society could be quite favorable.”

The Fed governor suggested that artificial intelligence developments could influence future monetary policy decisions as well.

“In the longer run, I expect AI will boost productivity and living standards,” Barr said, while noting that “I expect that the AI boom is unlikely to be a reason for lowering policy rates.”