Richmond Fed President Tom Barkin stated on Wednesday that one area of concern for the U.S. economy is that large corporations might be renouncing new investments due to the uncertainty surrounding the Trump administration’s economic policy.
According to Barkin, a recent study of chief financial officers conducted by Duke University and the regional Fed banks in Richmond and Atlanta revealed “total optimism” about the economy and the next administration, most likely due to the anticipated business-friendly environment.
However, optimism “pretty much flatlined,” according to Barkin, when asked about the future of their own businesses.
“We think this will be good, but I don’t know how it’s going to play out in my business,” Barkin stated in a Bloomberg Television interview, summarizing the general message.
As a former senior executive at McKinsey & Co., a management consulting firm, Barkin’s remarks regarding business sentiment are keenly watched by economists.
A separate National Federation of Independent company study of company sentiment after the presidential election revealed the largest increase in the organization’s 40-year history.
According to Barkin, large corporations make more investments in the economy, whereas small enterprises hire more people.
“I think it’s possible that we get another year like 2019, where consumers are spending and people are hiring, but the investment side of it is a question mark,” he stated.
In an email this week after a gross domestic product report, Boston College economist Brian Bethune stated that business investment had lost significant pace in the second half of 2024, declining at an annual rate of 0.8% in the fourth quarter. Prior to the COVID-19 pandemic, business investment declined at an annual pace of 2.7% in the fourth quarter of 2019.
According to Bethune, the continuation of comparatively high real interest rates in 2024 was most likely the cause of the lackluster investment activity.
He added that the increase in policy environment uncertainties this year may have contributed to the deferral of significant investment expenditures.
Barkin added that there was a problem with uncertainty.
“I’m hearing from everyone I talk to about just elevated policy uncertainty,” he stated.
The specifics of deregulation plans and tax policies are yet unknown, in addition to President Donald Trump’s proposed tariffs.
“There’s just a lot of uncertainty in the air, and it’s very hard to know what’s happening with growth and employment, what’s happening with inflation, until you get a little more clarity on all these uncertainties,” Barkin stated.
Barkin stated in the Bloomberg interview that the Fed would only raise interest rates in the near future if the economy were experiencing overheating. He went on to say that the data currently shows no indications of that.
“Inflation is declining, not increasing, in my opinion. The job market is stabilizing, in my opinion. We don’t seem to be overheating,” Barkin remarked.
But Barkin made it clear that he was not removing anything from the table.
He suggested there was a “lean” toward further cuts in the Fed’s December outlook. However, he claimed that December “seems like a lifetime ago.”
One question posed to Barkin was if he was biased in favor of monetary policy easing.
“My bias is to see what happens and react appropriately,” he stated.
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