Fed Governor Barr Stresses Caution in Adjusting Interest Rates

Federal Reserve Governor Michael Barr said on Thursday that the Fed should proceed cautiously with further adjustments to its policy stance after implementing its first rate cut last month. He also reiterated his concerns about excessively rapid price increases.

Barr noted he remains worried that inflation could prove persistent, and believes the Fed cannot be complacent in bringing inflation back to the central bank's 2% target. These remarks suggest Barr may be skeptical about the need for further rate cuts—while investors widely expect the Fed to continue cutting rates throughout the remainder of 2025.

Nominated in 2022 by former President Biden, Barr served as the Vice Chair for Supervision on the Fed Board, primarily overseeing the financial system during his tenure. Throughout his term, his voting record consistently aligned with Chair Powell's, and he has been less vocal about his monetary policy views compared to most colleagues. Earlier this year, Barr stepped down from the role of Vice Chair for Supervision but retained his position as a Fed Governor.

In his speech Thursday to the Economic Club in a Minneapolis suburb, Barr emphasized his ongoing concerns about the inflation trajectory. He indicated that the median projection released by Fed officials in September suggests inflation might not return to the Fed's 2% target until the end of 2027.

After holding rates steady for eight consecutive months, the Fed cut rates by 25 basis points last month in response to weakness in the labor market. Data released this summer showed hiring has slowed and the unemployment rate has edged up in the United States.

Barr acknowledged that momentum in the U.S. job market has weakened but stated it is unclear whether this is due to weak demand or insufficient supply. He pointed out that although the unemployment rate has risen, it remained at 4.3% as of August, "a level typically associated with healthy labor market conditions."