By Howard Schneider
WASHINGTON, Oct 30 (Reuters) – Richmond Federal Reserve President Tom Barkin said on Friday that with high inflation and the economy solid, the path of US monetary policy was “straightforward,” but with an open question about the pace of any future rate increases.
“Inflation’s high, demand is solid, unemployment is relatively low. So I think the direction of travel is pretty straightforward,” Barkin said on SiriusXM’s Business Briefing when asked if the Fed would need to raise rates again. “The question, though, is pace … We signaled a gradual approach. Gradual makes sense when you’re not much behind the curve, where you want time to learn.”
At this point, however, Barkin said that businesses in his mid-Atlantic and southeastern district report both rising cost pressures and a willingness to pass those costs along, with booming investment in artificial intelligence boosting demand and an array of prices.
“There are a lot of cost pressures that are hitting American businesses,” from diesel fuel to computer chips or the wages for skilled labor, Barkin said. “In the context of four or five years of elevated inflation I think it is just easier to make the argument… We are going to have to” raise prices.
“That lived experience of inflation does affect future inflation, unless of course the Fed does something about it.”
The next step could come as soon as the Fed’s December 8-9 meeting when investors expect policymakers to approve another quarter-point rate hike.
The Fed held rates steady at its meeting this week, but in a new policy statement said “the accumulation of more information” would help decide the path of policy. The new language was taken by many analysts as a signal of rate hikes to come, absent some unexpected drop in inflation that is proving more persistent than many policymakers had expected.
Data this week showed recent economic growth and recent inflation both stronger than anticipated.
Barkin is not a voter this year on interest rate policy, but will become a voter next year when the Fed is expected to continue raising borrowing costs. Investor views of the extent of hiking have shifted however, alongside a recent drop in equity markets that could influence future consumer spending and ease cost pressures.
(Reporting by Howard Schneider; Editing by Tomasz Janowski and Andrea Ricci )
