WASHINGTON, Aug 26 (Reuters) – The “low hire, low fire” approach that U.S. companies currently take in their hiring decisions is unlikely to last, Thomas Barkin, president of the Federal Reserve Bank of Richmond, said in a recent commentary, citing the risk that companies could resort to layoffs if the economy weakens.
Concerns about the labor market have increased at the US Federal Reserve in recent weeks and are a key reason why Fed Chairman Jerome Powell said in a speech on Friday that interest rate cuts were necessary to prevent a further and undesirable decline in unemployment in the US.
But so far that has not been the case, as companies remain reluctant to lay off employees even as they have become more conservative in filling positions, Barkin said in a commentary on the Bloomberg podcast “Odd Lots,” recorded at a Fed economic symposium on Friday and released on Monday.
But “either demand is going to remain and people are going to start hiring again, or there are going to be layoffs,” Barkin said. “We’re in a mode where we’re hiring little and firing little. That doesn’t seem like it’s going to stay that way. It’s either going to move left or right.”
The unemployment rate has risen steadily this year and currently stands at 4.3%, but this is due to a combination of slowing hiring and a rising number of job seekers, while layoffs have remained at low levels.
Protecting against downside risks to the labor market is one reason why the Fed will almost certainly begin cutting interest rates at its September 17-18 meeting.
Barkin said he takes a “test-and-learn” approach to rate cuts, likely referring to his support for an initial quarter-percentage-point cut, as opposed to the larger half-percentage-point cut some analysts say is appropriate. Inflation, he noted, is still half a percentage point above the Fed’s 2% target, and rate cuts could contribute to stronger inflation over time by boosting demand for housing and other goods.
But Barkin, who is a voting member of the Fed’s interest rate-setting committee this year, said confidence that price pressures are easing has grown, particularly as disinflation becomes more evident on a broader scale and is not limited to the goods sector.
“We’ve had four months in a row of very low readings, and that’s now across the basket of goods, whereas six or eight months ago it was just goods,” Barkin said. “So the concern about another acceleration in inflation has definitely receded.”
Reporting by Howard Schneider; Editing by Paul Simao
Disclaimer: The views expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided, however neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation for the exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no responsibility for any loss and/or damage arising from the use of this publication.
