Fed’s Barkin Indicates Backing for ‘Gradual’ Rate Increases

Federal Reserve Bank of Richmond President Tom Barkin argued that gradual interest rate hikes make sense at a time when inflation remains high amid low unemployment and solid economic demand.

“The direction of travel is pretty straightforward — the question, though, is pace,” Barkin said during an interview on SiriusXM radio on Friday, referring to the Fed’s monetary policy tightening campaign. “A gradual approach is a good way to go, and we’ll see what we learn over the next period of time,” he added.

Barkin was speaking two days after the Fed held interest rates steady, saying in statement that the “accumulation of more information” would help the decision-making committee determine its next moves. In a press conference following the decision, chairman Kevin Warsh said financial conditions were tighter than in September but he was “unwilling” to call them tight.

Read More: Fed Holds Fire as Warsh Telegraphs More Hikes Without Saying It

Barkin characterized the central bank as having signaled a gradual approach in its September meeting, when policymakers raised their benchmark to a target range of 3.75% to 4%.

“Gradual makes sense when you’re not much behind the curve, where you want time to learn both from the economic environment and the external environment,” Barkin said.

The Richmond Fed chief said there hasn’t been a significant pullback in spending, as workers still have jobs despite a low-fire, low-hire environment. On Thursday, a report showed US gross domestic product rose the most in a year during the quarter ending in September, driven by strong consumer spending. At the same time, the Fed’s preferred gauge for inflation accelerated to a year-on-year pace of 3.6% in September.

Consumers are proving creative when spending, Barkin said. Policymakers might need to lean back against a surge in investment driven by the build-out of artificial intelligence, he added.

“That kind of demand-side inflation, that’s not a supply-side shortage issue” such as was the case with the war on Iran that’s resulted in higher energy prices, he said. “We’ll see how long that pressure lasts. But if we do see a continued surge in demand, that would be the kind of thing you might want to lean against.”