US Firms’ ‘Low Firing’ Strategy Could Shift Towards Increased Layoffs, Fed’s Barkin Tells Bloomberg

By Howard Schneider

WASHINGTON – The current "low-hiring, low-firing" strategy employed by U.S. businesses is not expected to be sustainable, according to Richmond Federal Reserve President Thomas Barkin. He noted that companies may begin to implement layoffs if the economy takes a downturn.

Concerns regarding the job market have escalated at the U.S. central bank recently, which is a significant factor behind Fed Chair Jerome Powell’s statement on Friday that interest rate cuts are necessary to prevent a further decline in employment levels.

Barkin observed that while companies have become cautious about hiring, they are also hesitant to let go of employees at this time. During a recent appearance on the Bloomberg "Odd Lots" podcast, recorded at a Fed economic symposium, he expressed his thoughts.

He stated, "Either demand will continue and people will start hiring again, or you will start to see layoffs. We are in a low-hiring, low-firing mode. That does not feel like something that is going to persist. It is going to move left or it is going to move right."

The unemployment rate has risen steadily this year, currently sitting at 4.3%. This increase is due to a combination of slower hiring and a growing pool of individuals seeking work, whereas layoffs have remained relatively low.

To mitigate potential risks to the job market, reductions in the Fed’s benchmark policy rate are expected to be initiated at the central bank’s upcoming meeting on September 17-18.

Barkin mentioned that he intends to adopt a "test-and-learn" approach regarding rate reductions, indicating his support for a modest quarter-percentage-point cut, as opposed to the larger half-percentage-point reduction some analysts deem necessary. He highlighted that inflation is still half a percentage point above the Fed’s 2% target and that rate cuts could potentially boost inflation over time by increasing demand for housing and other goods.

Despite this, Barkin, who is a voting member of the Fed’s rate-setting policy committee this year, expressed some confidence in easing inflationary pressures, particularly as signs of disinflation are becoming more widespread and not limited to the goods sector.

"We have had very low readings for four months in a row, and it is now across the basket, whereas six months ago, eight months ago, it was just in goods," Barkin noted. "So the concern about inflation reaccelerating has definitely come down."