The “low hiring, low firing” approach that U.S. companies are currently taking in their employment decisions is unlikely to last, Richmond Federal Reserve President Thomas Barkin said in newly released comments, citing the risk that companies could resort to layoffs if the economy weakens.
Concerns about the labor market have intensified at the U.S. central bank in recent weeks and are a major reason why Fed Chairman Jerome Powell said in a speech Friday that interest rate cuts were needed to prevent further, unwanted erosion of U.S. unemployment.
That’s not happening yet, as companies remain reluctant to lay off employees even as they’ve become more conservative in filling positions, Barkin said in comments to Bloomberg’s “Odd Lots” podcast, which were recorded Friday at a Fed economic symposium and posted Monday.
But “either demand continues and people start hiring again, or we’re going to start seeing layoffs,” Barkin said. “We’re in a low-hiring, low-layoff situation. It doesn’t look like it’s going to persist. It’s going to swing one way or the other.”
The unemployment rate has risen steadily this year to 4.3% today, but that has been due to a combination of slowing hiring and rising job seekers, while layoffs have remained low.
Hedging against downside risks to the labor market is one reason the Fed is almost certain to begin cutting its benchmark interest rate at its meeting on Sept. 17-18.
Barkin said he was taking a “test and learn” approach to rate cuts, likely signaling his support for an initial quarter-percentage point rate cut rather than the larger half-percentage point cut that some analysts say would be appropriate.
He noted that inflation remains half a percentage point above the Federal Reserve’s 2% target and that rate cuts could contribute to higher inflation over time by boosting demand for housing and other items.
But Barkin, a voting member of the Federal Reserve’s policy-making committee this year, said confidence has grown that price pressures are easing, especially as disinflation has become more evident and not just in the goods sector.
“We’ve had four straight months of very low readings and now it’s across the basket, whereas six or eight months ago it was just goods,” Barkin said. “So the concern about inflation reaccelerating has definitely subsided.”
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