After Trump's election, the Federal Reserve voting committee speaks out: first observe the post-election situation before assessing the impact, and be prepared to respond to risks

In his first public speech following last week's U.S. elections and the Federal Reserve's interest rate cut, Thomas Barkin, the President of the Richmond Federal Reserve and a voting member of the Federal Open Market Committee (FOMC) this year, stated that the U.S. economy is in good shape, and the Fed is prepared to respond as needed to potential risks of declining employment or rising inflation.

On Tuesday, November 12, Eastern Time, Barkin spoke at an annual summit in Baltimore, Maryland, stating that current U.S. inflation is close to the Fed's target of 2%, the labor market is resilient, and the Fed is in the process of lowering borrowing costs. Therefore, Fed policymakers are ready to respond as soon as inflationary pressures rise or the job market weakens.

Barkin said:

"A strong but more discerning consumer, coupled with a more efficient and valuable workforce, keeps the economy in good shape. Regardless of how the economy develops, the Fed has the capacity to respond appropriately."

Barkin noted that consumer price sensitivity is increasing, which helps to curb inflation, and that the labor market remains resilient as companies retain talent. Part of the rise in productivity stems from companies investing in automation during the pandemic, and as turnover decreases, businesses benefit from more experienced employees. The favorable economic conditions allow the Fed to lower its policy interest rates, which are "out of sync" with other economic policies.

Barkin stated that the Fed's next actions will depend on how businesses perform. After the interest rate cut and the conclusion of the U.S. elections, it remains to be seen whether businesses will feel more confident about the future or continue to implement "recession strategies" by laying off employees to cope with limited pricing power.

Barkin revealed that he is studying two economic scenarios: one where, as the uncertainty of the elections fades, businesses may begin to invest and hire again, allowing the Fed to focus on the risks of rising inflation; the other where businesses may respond to profit compression due to weakened pricing power by laying off employees, which would increase the Fed's employment risks.

He also mentioned the possibility of more extreme situations, including potential financial market turmoil and economic shocks, whether from geopolitical factors or others.

At last week's FOMC post-meeting press conference, Fed Chairman Jerome Powell reiterated that Fed officials are not in a hurry to cut interest rates, stating that the best way to find a neutral rate for the economy is to be "cautious and patient." Regarding how the economy might be affected, he noted that Barkin echoed his remarks from last week's press conference on Tuesday, emphasizing the need to observe what happens after the presidential election before assessing potential economic impacts. He said:

"You will indeed make predictions based on trends, but you won't try to predict things that haven't happened yet, right? If you do that, you will really find yourself in a painful reality. When things happen, you incorporate them into your predictions."

On the same Tuesday, Barkin's former colleague, Loretta Mester, the former President of the Cleveland Federal Reserve, stated that if the global tariff policies proposed by Trump during his campaign are implemented, the Fed's rate cuts next year may be lower than previously expected. She hinted that if Trump's fiscal plans are realized, the Fed's current outlook will change, and the market's expectation of fewer than the previously anticipated four rate cuts may be correct Meister said:

"Next year, the pace of interest rate cuts will be influenced by their (the Federal Reserve's) views on fiscal policy."

"Personally, I believe the market is correct; the extent of their interest rate cuts next year may not be as much as assumed or expected in September."

Waller: Stablecoins may benefit the financial system, but legislative solutions are needed for security issues

Also on Tuesday, Christopher Waller, a "hot" voting member of the FOMC with permanent voting rights during his term and a Federal Reserve governor, delivered a speech titled "What Role Should the Private Sector and the Federal Reserve Play in Payments," without mentioning the impact of monetary policy and the elections.

Waller believes that the private sector should take the lead in innovation in the payments industry. "The private sector is generally able to provide goods and services to the economy in the most reliable and efficient manner. I apply this view to the payment ecosystem." He also posed the question: "What fundamental market inefficiencies can be addressed only through government intervention? If there are no satisfactory answers, then I believe the government should not intervene in private markets."

In his remarks, Waller mentioned that in the payments field, three years ago, the public began to discuss more about creating a new payment tool called Central Bank Digital Currency (CBDC), stating that the Federal Reserve Board is drafting a report to solicit public opinion on the potential benefits and risks of CBDC. He had asked in a speech three years ago: What problems can CBDC solve? In other words, what market failures or inefficiencies require this specific intervention? Over the past three years, he has not heard any satisfactory answers regarding CBDC.

Waller also mentioned stablecoins, which he believes are essentially "synthetic" dollars that can benefit the financial system. These dollar-pegged digital assets "may bring many potential benefits" and "eliminate" inefficiencies in the financial system. However, he stated that legislation is needed to address security issues, as such assets may face runs that could undermine the stability of the financial system