MNI: Fed's Barkin Sees Additional Rate Increases This Year

More interest-rate increases are needed to bring inflation back to 2% despite the risk of a recession, Federal Reserve Bank of Richmond President Thomas Barkin said Friday, warning that backing off too soon could force even tougher action later.

While inflation is likely past its peak, it remains elevated and the Fed is "resolute" in its mission to reduce price pressures, the Richmond Fed chief said. Barkin, who is not a voter on rates this year, did not specify an appropriate peak fed funds rate or weigh in on the size of the next rate increase.

"We still have work to do. Inflation is too high, and we will need to stay on the case until it is sustainably back to our 2% target. We have forecasted additional rate increases this year," he told the NC Chamber and NC Bankers Association.

SOLID DEMAND

The Fed has slowed its per-meeting hiking pace and "it makes sense to steer more deliberately" in light of studies that show it could take six to 12 months before weaker demand drags inflation lower, Barkin said.

The FOMC raised its fed funds rate target 50bps to 4.25% to 4.5% last month and penciled in another 75bps of increases this year. Officials expect PCE inflation to fall to 3.1% from 5.5% this year.

The last two months of price data have been a step in the right direction, but median inflation has stayed high, and firms outside of certain sectors like housing still see solid demand, Barkin said.

"The experience of the ’70s showed that if you back off on inflation too soon, it comes back stronger, requiring the Fed to do even more, with even more damage," he said.