(Reuters) -The U.S. central bank should move cautiously on further interest rate cuts, Federal Reserve Governor Michael Barr said on Thursday in a speech that leaned heavily into the risks of inflation, even as he acknowledged the potential vulnerabilities in a "roughly balanced" labor market. "The FOMC (Federal Open Market Committee) should be cautious about adjusting policy so that we can gather further data, update our forecasts, and better assess the balance of risks," Barr said in remarks prepared for delivery to the Economic Club of Minnesota, his first on monetary policy since June. With both upside inflation risks and downside risks to the labor market, the Fed is in a "challenging position" with no risk-free path forward as it sets monetary policy, Barr said, explicitly borrowing the way Fed Chair Jerome Powell phrased the central bank's current quandary. Barr said he supported the Fed's quarter-of-a-percentage-point reduction to the policy rate last month, but he focused many of his comments on the risks that tariffs pose to inflation, suggesting he is not sold on the need for a series of rate cuts, as financial markets currently expect. Barr said he forecasts underlying inflation by the Fed's key measure, the core Personal Consumption Expenditures Price Index, to rise to above 3% by the end of this year, and noted that Fed officials do not expect headline inflation to fall to the central bank's 2% goal until the end of 2027. That would be the longest period of PCE inflation above 2% since a seven-year stretch that ended in 1993, he said. "After the high inflation Americans have endured, two more years would be a long time to wait for a return to our target, and that possibility weighs on my judgment for appropriate monetary policy," he said. (Reporting by Ann Saphir; Editing by Paul Simao)
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