Richmond Federal Reserve President Tom Barkin said inflation is still too high and he needs to be convinced it’s slowing more quickly before he would back an end to interest-rate increases.
“I want to reiterate that 2% inflation is our target, and that I am still looking to be convinced of the plausible story that slowing demand returns inflation relatively quickly to that target,” he said Friday in a speech in Maryland.
“If coming data doesn’t support that story, I’m comfortable doing more,” he said. Barkin is not a voting member this year of the Fed’s interest-rate setting panel.
The Fed on Wednesday left its policy interest rate unchanged for the first time in 11 meetings dating to 14 months ago. The central bank wants more time to gauge how much its prior rate hikes have slowed the economy.
Yet the Fed also signaled the possibility of two more increases this year that would push the policy interest rate to as high as 5.75% unless inflation falls even faster. Just 14 months ago, the rate was near zero.
Barkin said the economy has gotten weaker, but it’s not weak. Strong demand, in turn, has given businesses the ability to keep raising prices to help juice profits.
“Businesses have rediscovered the pricing lever,” he said. “If they can raise prices and not lose much volume, they have an efficient path to increased earnings. They won’t throw that option away until competitors and customers force their hand.
Barkin said he could see a scenario in which the economy weakened enough to bring inflation down, in large part because of prior Fed rate hikes. Yet he noted that the Fed has been fooled too many times before to take it for granted.
“We have all told ourselves a number of stories over the last two years,” he said. “They each seemed compelling at the time, but inflation hasn’t yet seen a happy ending.”
The Fed’s decision to skip an interest-rate increase, he said, is not the end of the story.
“Think of it as slowing your boat as you approach the dock,” he said. “That gives us time to assess the data on demand and inflation and determine what more we might need to do.”
Barkin said he pays especially close attention to median rate of inflation as measured by the Fed’s preferred PCE price index.
“It hasn’t come in at levels consistent with our 2% target in any month since spring of 2021,” he said. ” It’s hard to say we’re approaching our target when we haven’t yet hit it even for one month.”