(Bloomberg) — Thomas Barkin, president of the Federal Reserve Bank of Richmond, said the U.S. economy is in good shape, but it’s unclear whether the labor market has returned to normal in terms of hiring or whether it’s in serious decline.
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Barkin spoke after the July jobs report showed nonfarm payrolls rose by 114,000 — one of the weakest gains since the pandemic — and the unemployment rate unexpectedly rose for a fourth month to 4.3%. Stocks fell while bonds rose, and futures traders priced in the possibility of an aggressive round of rate cuts through the end of the year.
“We’ve had two years, two and a half years of very bubbly labor markets,” Barkin said in an interview with the Carolina Business Review. “The question of course is, do we normalize or do we weaken?”
The difference is significant, he said, adding: “It brings us to the question of whether we will reach a plateau or whether unemployment will rise from here.”
September federal funds futures contracts imply a rate cut of at least a quarter basis point, and the chance of a 50 basis point rate cut is significant.
Barkin, who is a voting member of the Federal Open Market Committee this year, said he would not back down from his vote to keep interest rates steady this week. He said inflation is “normalizing” and the question is where the labor market goes from here.
“We’re seeing job growth, but the question you have to ask is how long can a low hiring and firing environment last?” he said, calling the condition abnormal. “It doesn’t have to weaken. It can strengthen if companies start thinking, hey, the opportunities that are out there are significant.”
The next FOMC meeting will be held on September 17-18.
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