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Fed's Barkin Seeks Confirmation of Inflation Easing to 2% Target

Richmond Federal Reserve President Thomas Barkin wants more evidence that US inflation is easing towards the central bank's 2% target. Barkin expressed this sentiment during an audience discussion at the Richmond Association for Business Economics.

Tom Barkin
Tom Barkin

Rate Hike Expectations and Inflation Pressures

Policymakers are planning one more quarter-point rate hike this year, with markets predicting a final rate increase on May 3. Despite recent inflation reports showing signs of easing price pressures, many Federal Reserve officials still emphasize the need to take further action to achieve the 2% target. They forecast rates reaching 5.1% in 2023, suggesting an additional 25 basis-point increase from the Fed's current benchmark target range of 4.75% to 5%.

Barkin Addresses Concerns of Rate Impact on the Economy

When asked if the current level of rates around 5% might harm the economy, Barkin reassured that such borrowing costs are not unusual historically, except for the past decade when rates were near zero. He believes the economy can function well with rates at this level, despite not being a voter on the rate-setting Federal Open Market Committee this year.

Silicon Valley Bank Collapse and Price Pressure Rhetoric

Although policymakers emphasize patience in assessing the impact of the Silicon Valley Bank collapse on the US economy, their rhetoric regarding the need to address price pressures remains consistent. Barkin expressed reassurance about the regulatory response to the bank collapses but cautioned against declaring victory prematurely.

Labor Market Challenges and Balancing Inflation

The persistent strength of US employment has caught economists and policymakers by surprise, increasing pressure on the Fed to continue raising rates. Officials highlighted the complex task of curbing inflation without harming the broader economy, with Barkin noting that the labor market has transitioned from "red-hot" to "merely hot."

Global Reserve Currency Concerns

In a separate statement, Barkin mentioned that many countries are unhappy with the US dollar being the global reserve currency, as the US has "weaponized" it through sanctions on some businesses. He believes that the rest of the world would prefer a different reserve currency.