By Howard Schneider

WILMINGTON, North Carolina (Reuters) – The U.S. central bank’s half-percentage-point interest rate cut last month acknowledged that its policy rate was “out of sync” with the economy, according to Richmond Federal Reserve President Thomas Barkin on Wednesday.

With inflation decreasing and unemployment near sustainable levels, Barkin stated, “the number that now seemed out of sync was the fed funds rate, which no longer needed to be as restrictive given the progress that’s been made,” in remarks prepared for the University of North Carolina Wilmington economic conference.

Projections indicate a further half-percentage point cut from the Fed over the year “takes a little bit of the edge off,” he noted.

Barkin, a voter on the Fed’s interest rate policy this year, supported the half-percentage-point cut delivered by the U.S. central bank on September 18.

The Fed is expected to cut rates by a quarter of a percentage point at its Nov. 6-7 meeting, reducing the benchmark rate to the 4.50%-4.75% range. Before that meeting, the U.S. government will release employment reports for September and October, along with September’s inflation data. Policymakers must also assess the impact of a strike that closed ports on the U.S. East Coast and Gulf Coast, as well as risks from escalating conflicts in the Middle East.

‘LEARN AS WE GO’

Barkin remains cautious about inflation despite ongoing economic growth, suggesting conditions could lead to a tighter job market in the upcoming months rather than a weaker one. He emphasized, “There is still work to do on inflation,” mentioning that the core personal consumption expenditures price index stands at 2.7%, with little expected decline until next year.

The Fed aims for a 2% annual headline inflation rate, with the core PCE figure serving as a guide for future behavior of the headline rate.

While some elements suggest continued “disinflation,” Barkin noted, “it remains difficult to say that the inflation battle has yet been won.”

Recent rate cuts could boost demand for significant purchases like homes and cars, risking excess demand over supply. He cautioned that U.S. labor unrest and geopolitical issues could also drive prices up.

Furthermore, Barkin highlighted potential shifts in the job market. While the Fed’s discussions focus on preventing the current 4.2% unemployment rate from increasing further, he warned that sustained economic growth and rising demand could leave “employers running lean” and in need of workers.

“As we decide how fast to move and how far to go during this rate-reduction cycle, we are just going to need to be attentive and learn as we go,” he concluded.