Financial Associated Press, February 18 (Editor Zhao Hao) Federal Reserve Governor Michael Barr recently stated that interest rates should remain unchanged "for some time" until more evidence is seen that inflation is falling back toward the 2% target.
On Tuesday (February 17), Barr said in a speech published on the Federal Reserve's official website, "Based on the current situation and available data, it may be appropriate to maintain interest rate stability for some time to come as we evaluate upcoming data, changes in the economic outlook, and the balance of risks."
After cutting interest rates by a total of 75 basis points in 2025, the Federal Reserve chose to "stand still" last month and kept the federal funds rate target range unchanged between 3.5% and 3.75%.
Recent data shows that the U.S. labor market has stabilized to a certain extent, and inflation is lower than expected, but still above 2%.
Barr believes that last year's rebound in commodity inflation has slowed the central bank's progress on price stability goals and increased the risk that high inflation will persist, so policymakers need to "remain vigilant."
"Before considering further cuts in policy rates, I would like to see a sustained and steady decline in commodity price inflation, provided that labor market conditions remain stable."
Barr also said the employment situation was stabilizing, but warned the labor market was in a "delicate balance" with hiring close to zero and therefore more vulnerable to shocks.
Data released last week showed that the United States added 130,000 non-farm jobs in January, and the unemployment rate dropped slightly to 4.3%. However, downward revisions to last year's data show that the pace of hiring has actually slowed significantly.
In his speech, Barr also focused on an issue of growing concern among policymakers: whether artificial intelligence (AI) has driven recent productivity gains and whether that should affect monetary policy.
Some Trump administration officials, including Treasury Secretary Bessant, believe that AI-driven productivity gains could allow the Fed to lower interest rates in a faster-growing economy, because higher productivity helps prevent growth from turning into inflation.
Barr disputed that view, saying accelerating productivity growth was not enough to justify a rate cut. He mentioned Greenspan's approach in the last century: At that time, the Fed also bet on productivity growth, but was not in a hurry to cut interest rates.
Barr said: "For a period of time he (Greenspan) kept interest rates unchanged, and then as the economy grew faster and inflation began to pick up, he raised interest rates instead. Based on the experience of the 1990s, there is no clear indication that interest rates should be lowered now."
Barr added that artificial intelligence could have a "transformative impact" on the economy and reshape labor demand. If productivity rises significantly, it could also push up the so-called neutral interest rate.
He also warned that in the short term, AI may also "deeply disrupt" the labor market, impacting some workers and forcing many to retrain or transform.
(Zhao Hao, Financial Associated Press)
