01:18 PM EST, 01/03/2025 (MT Newswires) -- Richmond Fed President Tom Barkin said Friday that his 2025 baseline expectation for the US economy is positive amid strong consumer spending, though there are risks on the inflation front.

Last month, the central bank's Federal Open Market Committee reduced its benchmark lending rate by 25 basis points and flagged fewer cuts ahead than projected in September. The FOMC's Summary of Economic Projections at the time showed that policymakers raised their US economic growth outlook for 2024 and 2025 and their estimates for headline and core personal consumption expenditures inflation through 2026.

While there is uncertainty around the incoming Trump administration's economic policy, "I expect more upside than downside in terms of growth," Barkin said Friday in remarks prepared for a speech in Maryland. President-elect Donald Trump has vowed to raise tariffs and slash taxes and regulation.

"A strong but choosier consumer, coupled with a better-valued, more productive workforce has landed the economy in a good place," Barkin said. Consumer spending represents approximately 70% of gross domestic product and is showing "no signs of slowing," he added.

The labor market is resilient, equity markets are "remarkably buoyant" and business surveys are indicating high optimism, according to Barkin. "With business optimism so high and labor supply unlikely to continue to grow so robustly, it feels like the current labor market equilibrium is more likely to break toward hiring than toward firing, with, of course, some differences by sector."

The annual headline PCE inflation has dropped to 2.4%, but it's still above the FOMC's 2% target, Barkin said, adding that he sees risks on the inflation front as wage and product costs potentially grow.

"Inflation is not yet back to target, so we still have more work to do, but we don't think we need to be nearly as restrictive as we once were to finish that job," he said.

Markets are pricing in a roughly 89% probability that the FOMC will leave interest rates unchanged in the range of 4.25% to 4.50% later this month, with the remaining odds in the favor of a 25-basis-point cut, according to the CME FedWatch tool.

"I expect the story for the coming year to be more about supply and demand -- and perhaps geopolitics -- than monetary policy," Barkin said. "Were employment to falter or inflation to reemerge, we have the tools to respond."