Thomas Barkin, president of the Federal Reserve Bank of Richmond, warned that U.S. inflation figures are too high.
Barkin made the remarks Saturday after an interview with Bloomberg at the Aspen Ideas Festival in Colorado. Although Barkin does not hold a voting seat on the Federal Open Market Committee (FOMC) this year, he can attend meetings and speak, and he is set to regain his FOMC voting rights next year.
"It's hard to be confident that inflation will return to 2% without additional effects from the base rate, the labor market, or other factors that drive disinflation," Barkin said, referring to disinflation as a slowdown in the rate of price increases even as prices continue to rise. The Personal Consumption Expenditures (PCE) index for May, released Wednesday, rose 4.1% from a year earlier, the largest increase since April 2023, when it climbed 4.5%.
He assessed that while fuel prices fell as oil prices declined following the ceasefire agreement between the United States and Iran, factors such as artificial intelligence (AI) infrastructure are affecting inflation.
He also took issue with how companies are behaving in the face of inflation. "Businesses factor in current inflation when setting prices, so there is a strong chance inflation will persist to some degree," Barkin said. "I'm concerned about that, and that's why I think a 'mild tightening' is a reasonable stance." Costs are rising, pushing up companies' input expenses, but the extent of price pass-through is limited because consumers are reluctant to accept price increases, creating a confusing picture, he said.
Still, Barkin sees inflation slowing in the future as price pressures ease from tariff and oil price shocks. The variable, however, is that the strong consumption trend in the United States continues to persist. Amid the conflicting economic indicators, he concluded, "We will have to watch how the economy changes over the next few months to determine the appropriate policy direction."
Meanwhile, the U.S. Federal Reserve (Fed) held its base rate at 3.50% to 3.75% at the FOMC meeting held on the 17th of this month, the first under new Chair Kevin Warsh. However, half of the members projected at least one rate hike, signaling a hawkish stance.
In particular, many members are concerned about price increases in the services sector, because price increases in such items that are slow to rise tend to bring about sticky inflation, in which high prices persist for longer.
