#Balkin: Rate cut expectations weaken#

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Overview

Federal Reserve Governor Barkin recently delivered a speech expressing optimism about the U.S. economic outlook, predicting that the upside potential for growth outweighs the downside risks. He also suggested that further restrictive measures to control inflation are not needed. However, he acknowledged a growing recognition that long-term interest rates may not decline as sharply as previously hoped, indicating a weakening of market expectations for rate cuts. Barkin believes that continued momentum in consumer spending will support healthy economic growth, fueled by high business optimism and a labor market balance that is more likely to favor hiring than layoffs. Additionally, he expects consumers' focus on costs to put pressure on businesses to limit price increases, which will continue to dampen inflation.

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Analysis

Federal Reserve Governor Barkin recently gave a speech in which he adjusted expectations for interest rate declines. He said that he is increasingly recognizing that long-term interest rates may not fall as sharply as previously hoped. While he is optimistic about the economic outlook for 2025, expecting more upside than downside to growth, and believes that the recent rebound in business optimism is due to expectations of economic expansion, he also noted that inflation has not yet returned to the Fed's 2% target and that further action is needed. Despite this, Barkin believes that it will not be necessary to take as restrictive measures as before to accomplish this. Overall, Barkin's speech suggests that the Fed's expectations for interest rate declines have softened, but it remains optimistic about the economic outlook and believes that inflation will continue to decline, but it will take time.

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Classic Views

Long-term interest rate decline expectations have weakened

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Optimistic about the economic outlook for 2025

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Consumer spending growth momentum will maintain healthy economic growth

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Inflation has not yet returned to the Fed's 2% target

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But restrictive measures are not needed as before

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