Richmond Federal Reserve President Thomas Barkin said gradual interest-rate increases make sense while unemployment remains low, demand stays firm and inflation is still elevated. Speaking about the Federal Reserve’s tightening path, Barkin said the direction of policy is already clear and that the main question is how quickly officials should move. He added that the Fed had already signaled a gradual approach at its September meeting, arguing that such a pace is appropriate when policy is not obviously behind the curve and policymakers want more time to gather information from economic and external conditions. Barkin also said consumer spending has not contracted in a meaningful way. He described the labor market as one with low hiring and low layoffs, while workers are still holding on to their jobs. He further noted that consumers have been creative in how they spend. Looking ahead, Barkin said policymakers may need to act if investment driven by artificial intelligence buildout continues to fuel demand-side inflation. He distinguished that pressure from supply shortages, citing energy price increases caused by the Iran war as a different case.
Richmond Federal Reserve President Thomas Barkin said gradual rate hikes are reasonable while unemployment remains low, economic demand is steady and inflation is still high.
Discussing the Federal Reserve’s monetary tightening path, Barkin said, "The direction of policy is quite clear. The question is the speed at which it moves."
September meeting already pointed to a gradual path
Barkin said the Fed had already signaled a gradual approach at its September meeting. He said such an approach makes sense when policy is not clearly behind the situation and policymakers want time to gather more information from economic conditions and the external environment.
"When policy is not obviously behind the curve, and policymakers want time to get more information from the economic environment and the external environment, a gradual approach is reasonable," he said.
Consumer spending has not materially pulled back
Barkin said consumer spending has not shown a clear contraction. Even though the labor market is in a low-hiring, low-layoff state, workers are still keeping their jobs. He also said consumers have been fairly creative in how they spend.
AI-driven investment surge could require a response
Barkin also said policymakers may need to take steps to restrain the surge in investment tied to artificial intelligence buildout.
"This kind of demand-side inflation is not a supply shortage issue. It is different from a case like energy prices rising because of the Iran war," Barkin said. "We will watch how long this pressure lasts. But if demand keeps surging, that may be a case where action is needed to restrain it."
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