01:09 PM EDT, 10/09/2025 (MT Newswires) -- Due to continuing uncertainty around the economic outlook, the Federal Open Market Committee should move cautiously when considering further rate reductions, Federal Reserve Governor Michael Barr said Thursday at the Economic Club of Minnesota Luncheon.

Barr noted that research shows acting more gradually is called for when there is considerable uncertainty.

"I believe that principle applies now, and that the FOMC 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. "If we see inflation moving further away from our target, then it may be necessary to keep policy at least modestly restrictive for longer. If we see heightened risks in the labor market, then we may need to move more quickly to ease policy."

Barr said that he remains "skeptical of assurances that we should fully 'look through' higher inflation from import tariffs. While, in principle, tariffs are a one-time increase in prices and should not sustainably raise inflation, that may not be the case if prices keep rising month after month and affect expectations."

At the same time, there have been signs of labor market slowing that will weigh on the economy and could require a response from the FOMC, Barr said.

"While we do not have the full complement of labor market data because the government shutdown has delayed the Bureau of Labor Statistics' employment report, we do know that the payroll services firm ADP found that private-sector employment shrank last month, in keeping with a slowdown in job creation since May," Barr said. "Part of the slowing surely reflects developments on the supply side - from both reduced net immigration and somewhat reduced labor force participation - but it is unclear exactly how much. As a result, it is challenging to gauge exactly how much labor demand has softened."

"With the easing in output growth and the likelihood of tariffs and labor supply weighing on the economy in the months ahead, we need to be prepared for the possibility that the softening in the labor market will become something worse, especially if there is a further adverse shock to demand," Barr added.