Richmond Fed President Thomas Barkin said the balance of risks has shifted decisively toward inflation, explaining the Fed’s latest tightening move and keeping further hikes firmly in play. Speaking Tuesday at the CFA Society Baltimore at The Center Club in Baltimore, Barkin said, “The risks to inflation outweigh the risks to maximum employment.” Headline PCE inflation stood at 3.7% in July and core PCE at 3.3%, while more than 60% of PCE categories were rising faster than 3% year on year. By contrast, the labor market remained resilient, with unemployment at 4.1%, layoffs muted and August payroll growth exceeding 160,000.
On why the Fed acted now, Barkin’s answer was striking: “not that much” had changed. That, he argued, was precisely the problem. The economy and labor market remain on solid footing, businesses are reporting firmer conditions, consumer spending is holding up and investment remains strong, particularly around AI, defense and manufacturing. Hiring remains the main weak spot, but slower labor-force growth has limited the impact on unemployment. Meanwhile, inflation has also failed to improve materially, leaving price growth more than a percentage point above the Fed’s target.
Barkin also pushed back against hopes that inflation will simply fade as temporary shocks pass. Tariffs, Middle East disruptions and AI-related supply pressures are proving persistent, while firms appear more willing than before the pandemic to pass higher costs through to customers. Richmond Fed surveys show prices received rising at an average 3.5% pace since late 2023, while CFO expectations for 2027 price growth reached 4.1%. Barkin stopped short of committing to another hike, saying the path will depend on incoming data, but warned that persistent inflation, new cost pressures or stronger demand could require additional tightening.
Key Takeaways
- Richmond Fed President Thomas Barkin said inflation risks now outweigh employment risks, explaining the Fed’s latest rate hike.
- Barkin argued the Fed acted not because conditions suddenly deteriorated, but because inflation failed to improve while demand and the labor market remained resilient.
- Inflation remains broad, with more than 60% of PCE categories rising faster than 3% year on year.
- Barkin said consumer spending, investment and business conditions remain firm enough to give the Fed room to focus on inflation.
- He warned that repeated shocks from tariffs, Middle East disruptions and AI-related demand could become embedded in corporate pricing behavior.
- Barkin left additional rate hikes firmly on the table, warning that one policy “talking-to” might not be enough.
