Federal Reserve's Barkin: The logic behind interest rate hikes is likely to revolve primarily around rising inflation expectations.

Richmond Fed President Barkin said that current corporate behavior still suggests they view high oil prices as a short-term disturbance, with little evidence that this has led to consumer spending cuts or a worrying shift in inflation expectations. "My intuition is that people are still looking at this from a short-term perspective," Barkin said on Tuesday. "Gasoline spending has clearly increased significantly, but other spending still looks quite healthy." Barkin stated that scenarios exist that could push Fed policy in either direction, but in his view, the logic for rate hikes is likely to revolve primarily around rising inflation expectations, a scenario that would force policymakers to demonstrate their commitment to keeping inflation near the 2% target. He said, "The rationale for rate hikes will revolve around inflation expectations eventually starting to rise. But I don't see that breakthrough yet." In contrast, scenarios for rate cuts would include a rapid decline in inflation from its current level of about 1 percentage point above target to 2%, or a weakening labor market requiring support through rate cuts. (Jinshi)