Richmond Federal Reserve President Thomas Barkin stated that policymakers should consider the possibility of raising interest rates if inflation does not show significant progress in decreasing, in an interview with CNBC. Barkin emphasized the uncertainty surrounding the future of inflation and economic conditions, stating that he is not ready to commit to a particular policy path.
While many market experts are anticipating that the Fed will start cutting rates in 2024, Barkin expressed caution, noting that there is no precise solution for handling inflation. He stated, “If inflation comes down naturally and smoothly, awesome, you know, there’s no particular need to do anything with interest rates if inflation steps down. But if inflation is going to flare back up, I think you want to have the option of doing more on rates.”
Barkin’s comments come on the heels of a report from the Commerce Department, which revealed that the economy grew at a 5.2% annualized pace in the third quarter. Despite strong economic growth, inflation remains above the Fed’s 2% target, though it has been consistently trending lower in recent months.
Market expectations, however, indicate that the Fed could cut rates as much as four times in 2022. Fed Governor Christopher Waller has also suggested the possibility of rate cuts if inflation data shows progress over the next few months. Despite this, Barkin refrained from making any definitive statements, calling the possibility of easing policy “a forecasting question.”
Meanwhile, Atlanta Fed President Raphael Bostic offered his perspective on the economic outlook, stating that he foresees substantial slowing of economic growth and expects inflation to decline further. Bostic’s staff anticipates that the inflation rate will decrease to 2.5% by the end of 2024 and then return to the Fed’s 2% target by the end of 2025.
Both Bostic and Barkin are set to be voters on the rate-setting Federal Open Market Committee in 2024. With inflation and economic conditions remaining uncertain, the decisions of these policymakers will have a significant impact on the future path of interest rates and monetary policy in the United States.