MNI: Fed's Barkin Warns More Aggressive Hikes May Be Needed

More aggressive interest rate increases starting as early as March may be needed to calm inflation, which could stay elevated even as supply bottlenecks disappear, Richmond Fed president Thomas Barkin warned Thursday.

"The closer that inflation comes back to target levels, the easier it will be to normalize rates at a measured pace. But were inflation to remain elevated and broad-based, we would need to take on normalization more aggressively, as we have successfully done in the past," he told a Virginia Bankers Association virtual meeting.

Annualized CPI services inflation has been 2.8% over the pandemic period, roughly in line with the prior five years, while annualized goods inflation has been 6.3%, significantly higher than the prior five-year drop of -0.2%, he noted. It's unclear whether goods inflation will return to the old normal after supply chains are redesigned, he said.

Meanwhile, continued labor shortages will pressure the price of services, and Barkin is watching how much can and will be passed on to customers.

"The timing and pace of any rate moves will depend on the answer to my inflation question," he said. Asset purchases are winding down. "At current pace, we will be done in mid-March. At that time, we will be free to begin normalizing rates, should circumstances support that."