Fed Rate Increases To Persist Until Inflation Eases, Barkin Says

(Bloomberg) -- The Federal Reserve will keep raising interest rates and cutting its balance sheet until US inflation eases, Richmond Fed President Thomas Barkin said. 

“Our rate and balance-sheet moves take time to bring inflation down,” he said in remarks prepared for delivery at an event hosted by the Prince William Chamber of Commerce in Virginia Friday. “The Fed will persist until they do.”   

Fed officials raised interest rates by 75 basis points on Sept. 21 for the third straight meeting -- bringing the target for the benchmark federal funds rate to a range of 3% to 3.25% -- with some calling for a hike of the same magnitude in November. Policy makers have signaled that they could deliver another 1.25 percentage points of increases by the end of the year.   

They’ve increased the rate by 3 percentage points since March -- an unprecedented pace of tightening in the past four decades of policy making -- in their quest to cool an annual inflation rate that’s at an almost four-decade high down to the 2% target, a process the say will likely involve some pain.   

“It would be a good-news story if we went a little bit aggressive and inflation came down on its own,” Barkin said later in response to questions. “I could see a path” on how to adjust “in a way that’s very different than getting even further behind and trying to catch up.”

The Fed’s preferred gauge to measure inflation -- the personal consumption expenditures price index -- rose 6.2% in August from a year earlier, higher than forecast and well above the central bank’s 2% goal. 

“Inflation should come down, but I don’t expect its drop to be immediate nor predictable,” said Barkin, who isn’t a voter on the rate-setting Federal Open Market Committee this year. “Significant shocks simply take time to dampen,” he said, referring to the disruptions created by the Covid-19 pandemic, supply-chain snarls, and Russia’s invasion of Ukraine.

“The Fed is moving expeditiously,” Barkin said. “We have raised rates 300 basis points, started shrinking our balance sheet aggressively and signaled there are more rate increases to come.”

(Updates with comment from Barkin in fifth paragraph.)

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