Recent statements from the US Federal Reserve indicate that while uncertainties in monetary policy haven't completely disappeared as we head into 2026, risks are beginning to be discussed within a clearer framework. Assessments by Fed members Thomas Barkin and Stephen Miran have brought the delicate balance between expectations of interest rate cuts and concerns about economic growth back to the forefront.
Key statements from Fed officials
Richmond Fed President Thomas Barkin emphasized that the US economy performed more resiliently than expected last year. However, according to Barkin, this resilience was limited to specific sectors rather than a widespread strengthening of the economy. The fact that demand and employment growth were confined to a narrow range, coupled with the observed decline in consumer and corporate confidence, signals that the risks facing monetary policy are still present.
Barkin stated that the Fed is entering a period where "fine-tuning" is necessary between its dual mandates of price stability and full employment. Barkin noted that although inflation has declined, it is still above the target, and unemployment remains at low levels, but added that further deterioration of the labor market is also undesirable. In this context, he stated that the current policy interest rate is within a "neutral range," neither excessively suppressing the economy nor excessively loose.
Regarding expectations for 2026, Barkin adopted a more optimistic tone. He said that the uncertainties felt globally last year are expected to decrease this year, which could boost confidence among consumers and businesses. He shared the view that tax changes, regulatory relaxations, and potential interest rate cuts, when considered together, could accelerate economic activity.
On the other hand, Stephen Miran, one of the names mentioned for the Fed chairmanship, gave clearer and more dovish messages regarding monetary policy. Miran said he believes that data will continue to show that interest rate cuts are appropriate. He emphasized that the "unusual" dynamics in housing inflation have led to headline inflation remaining above the target, while core inflation remains quite close to the Fed's targets. According to Miran, current monetary policy is still restrictive and this is putting pressure on economic growth. Arguing that the Fed should cut interest rates by more than 100 basis points this year, Miran warned that if policy remains tight for too long, growth could be hampered in its early stages. He stated that he believes fiscal policy will support growth throughout 2026 and expressed optimism about the overall economic outlook. He also added that he has not had any discussions with Trump regarding the Fed chairmanship and that all candidates on the shortlist are trustworthy individuals.
On the market front, expectations are currently more cautious. Current pricing indicates that the Fed will make two interest rate cuts this year. However, it is noted that this outlook may change with the data to be released in the coming days. In particular, the JOLTS data, along with the employment reports to be released later in the week and the inflation data to be released next week, may somewhat reduce the uncertainty regarding the Fed's interest rate path. Therefore, investors continue to closely monitor macroeconomic data as well as messages from Fed members.
