Fed Eyes More Interest Rate Hikes Despite Slowing Inflation

Fed Eyes More Interest Rate Hikes Despite Slowing Inflation

Richmond Federal Reserve Bank president Thomas Barkin asserted that he wants to raise interest rates further to bring inflation under control.

 

Despite positive Consumer Price Index (CPI) data last week that saw a year-over-year inflation edge lower to 8.5 percent, Richmond Federal Reserve Bank President Thomas Barkin asserted that he still wants to raise interest rates further to bring inflation under control.

“We’re happy to see inflation start to move down,” he told CNBC’s Squawk on the Street on Friday.

 

However, “I’d like to see a period of sustained inflation under control, and until we do that, I think we’re just going to have to continue to move rates into restrictive territory,” he continued.

Barkin added that inflation data are still far above the central bank’s 2-percent long-run inflation objective.

“You’d like to see inflation running at our target, which is 2 percent at the PCE, and I’d like to see it running at our target for a period of time,” he said.

“Consumers really dislike inflation, and one message that I get loud and clear as I wander around my district is, ‘we don’t like inflation,’” he continued.

CNBC noted that Barkin’s stance reflects “those of most Fed officials who have spoken recently about rates.”

Last month, the Federal Reserve raised its key short-term rate by three-quarters of a percentage point for a second straight month. The unanimously approved rate hike put the federal funds rate at a range of 2.25 percent to 2.5 percent, the highest level since December 2018. In its post-meeting statement, the rate-setting Federal Open Market Committee noted that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

Fed Chair Jerome Powell appeared to be open-minded regarding the central bank’s next move at the September meeting, saying that it would primarily be driven by what the data shows. Markets are currently divided over whether the Fed will increase by three-quarters of a point in September or scale down to half a point, according to CME Group data.

Meanwhile, Yahoo Finance reported that JPMorgan CEO Jamie Dimon recently told wealthy clients that the economy was “strong” but “storm clouds” were on the horizon.

“It is a strong economy. Consumers’ balance sheets are in good shape. Businesses are equally in good shape. When you forecast, you have to think differently. It is a bad mistake to say, ‘Here is my single-point forecast,’” he said.

“What is out there? There are storm clouds. Rates, QT, oil, Ukraine, war, China. If I had to put odds: soft landing 10 percent. Harder landing, mild recession, 20 percent, 30 percent. Harder recession, 20 percent, 30 percent. And maybe something worse at 20 percent to 30 percent,” he concluded.

Ethen Kim Lieser is a Washington state-based Finance and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters.