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

US economic conditions are, if anything, firming, according to Richmond Fed President Tom Barkin. Consumer spending continues, and strength beyond the artificial intelligence boom keeps the Federal Reserve focused on inflation, he said on Tuesday. The risks to inflation outweigh the risks to maximum employment, prompting the central bank's recent rate hike, Barkin explained in comments prepared for the CFA Society Baltimore.

The 0.25 percentage point increase will help bring inflation back to the Fed's 2% target, he added. However, it remains unclear whether further hikes will be necessary and how many, as Barkin, who is not a voting member of the Federal Open Market Committee this year, acknowledged. The Fed recently raised its policy interest rate to the 3.75%-4.00% range, with investors expecting more increases.

Barkin's remarks come after other Fed officials broadened their concerns about inflation, attributing it to strong demand in the economy and not just energy, tariff, and supply issues. Even passing shocks are proving to be persistent, producing more lasting price pressures than initially expected, Barkin stated. While it is tempting to blame high inflation on a few categories with high exposure to the Middle East conflict or tariffs, the Personal Consumption Expenditures Price Index is increasing at more than a 3% annual rate, he noted.

Momentum is being felt outside data centers, with the defense sector becoming more robust and manufacturing contacts growing more upbeat. Bankers also report healthy pipelines, according to Barkin.