Fed’s Barkin ‘open’ to possibility of inflation declining ‘in short order’

Federal Reserve Bank of Richmond President Thomas Barkin said Tuesday that inflation could decline “in short order,” but he acknowledged prices could remain elevated amid the Iran war .

“I’m open to the possibility that inflation could come back down in short order,” Barkin told the CFA Society’s Baltimore branch.

Barkin noted recent “shocks” to the economy could “reverse,” consumers could “start to reach their limit,” investment may slow and unemployment may rise, with those circumstances combined leading to inflation falling toward the Fed’s 2 percent target rate.

Annual inflation, as measured by the consumer price index (CPI), has increased from 2.4 percent in February to 3.4 percent last month. Inflation hit a three-year peak in May, reaching 4.2 percent as the Iran war led to energy shocks .

The central bank sought to tackle that persistent inflation last week by raising its benchmark interest rate by a quarter point, to a range of 3.75 percent to 4 percent. It marked the first time the Federal Open Market Committee (FOMC) had raised rates since July 2023.

Barkin, who is not a voting member of the FOMC , said Tuesday the rate-setting panel “needed to act” to tame inflation, echoing what Fed Chair Kevin Warsh said last week .

“We are committed to returning inflation sustainably to our 2 percent target,” Barkin said. “Last week’s hike will help. Will additional hikes be required, and how many? We’ll see.”

After the FOMC unanimously raised rates, Warsh said the move “will support a timelier return” to the central bank’s 2 percent inflation target. The Fed chair, though, said he was “ill-prepared” to speculate on future FOMC decisions.

But 16 of 18 FOMC officials predicted at least one more rate hike this year, as part of the committee’s quarterly economic projections . The 12-member panel will meet twice before the calendar shifts to 2027 in late October and early December.

While Barkin noted inflation could fall shortly, he broached another scenario, in which the pricing metric “could prove more stubborn.”

The Richmond Fed president said, “Temporary shocks could drag on. New cost pressures could develop. Firming demand conditions could flow through to prices, as could the impact of today’s inflation.”

Barkin, who will become a voting member of the FOMC next year, also noted inflationary pressures are not solely stemming from the Iran conflict or President Trump’s tariffs on foreign imports.

More than 60 percent of the personal consumption expenditures price index , the Fed’s preferred measure of inflation, was up by greater than 3 percent year-over-year in July, Barkin noted.

“The intensity and frequency of cost pressures are up — from tariffs and oil prices to be sure, but also from AI [artificial intelligence] build-out spillovers, health care, transportation, or commodity prices,” he remarked.