Richmond Fed President: Inflation Easing Requires Time, Further Rate Hikes Not Ruled Out

According to Zhitong Finance APP, Richmond Fed President Barkin has warned that a recent series of inflation shocks may take a long time to subside, and there is a risk of persistently high price pressures becoming entrenched. After the Federal Reserve implemented its first rate hike in more than three years last week, Barkin stated that the hike would help curb inflation, but it remains to be seen whether further monetary tightening is needed and how many more hikes may be necessary in the future.

Speaking in Baltimore on Tuesday, Barkin said that recent supply-side shocks are no longer one-off or short-lived events, and the resulting price pressures continue to persist in the economy. "These factors may eventually fade, but I expect this will take time," Barkin noted. In the meantime, the current elevated level of inflation could further influence future inflation trends.

Last week, the Federal Reserve unanimously voted to raise the target range for the federal funds rate by 25 basis points to 3.75%-4%, marking its first rate hike in over three years. The Fed stated in its policy statement that inflation remains elevated, and this policy action will help drive inflation to return to the 2% target in a more timely manner.

In the latest rate forecasts released last week, the median projection among Fed officials indicated that there might be one more rate hike before the end of this year, while the median forecast for the federal funds rate at the end of 2027 is unchanged from the end of 2026. However, there remain significant differences among officials regarding the rate path for next year.

Barkin did not explicitly state whether he supports another rate hike. He said the Fed is committed to bringing inflation sustainably back to its 2% target, and last week's hike will help with this objective. As for whether further hikes are needed and how many more may be required, Barkin commented: "We will wait and see."

Barkin does not have monetary policy voting rights on the Federal Open Market Committee (FOMC) this year.

Despite remaining vigilant on inflation, Barkin's view on the U.S. economic fundamentals is still relatively optimistic. He stated that the U.S. economy and labor market remain robust, and according to corporate feedback, economic conditions may even be strengthening further.

Last week's Fed policy statement also pointed out that U.S. economic activity continues to expand at a solid pace, domestic spending remains resilient, productivity growth is strong, capital investment is robust, and employment growth is essentially keeping pace with labor force growth.

In his speech, Barkin outlined two possible scenarios for future inflation.

The first scenario is that recent shocks gradually reverse and price pressures cool off quickly. He said it is possible that inflation could decline again in a relatively short period of time. If consumers approach their limits, corporate investment slows, the labor market softens, and cooling demand could help ease price pressures. The other scenario is that inflation proves stickier. Some shocks previously thought to be temporary could last longer, while new cost pressures may also arise. If demand strengthens further, companies may continue to pass on costs to prices, and the current high inflation itself may impact future prices.

In the Q&A session following his speech, Barkin said he expects that some of the pressures from rising energy prices and tariffs will eventually subside, but restrictive monetary policy also needs to play a role in reducing inflation. He noted that some inflationary factors do, in fact, pass, and that "appropriately restrictive policy" will play its part. However, how long this process will take and how difficult it will be to bring down inflation by restraining demand remains to be seen in future data.

He also stated that the price pressures currently observed are "slightly higher" than he would like, but from the perspective of the entire U.S. economy, there are no obvious signs of overheating—except in the artificial intelligence sector. "I don't think the economy is overheating, except for the AI sector, which is indeed quite hot."

The latest economic forecasts show that Fed officials expect U.S. real GDP growth in 2026 to be 2.3%, higher than the June estimate of 2.2%; the median unemployment rate forecast for 2026 is 4.1%, lower than the previous estimate of 4.3%. Meanwhile, the 2026 PCE inflation rate is projected at 3.7%, and core PCE inflation at 3.4%, both up 0.1 percentage points from the June forecasts.

This means that the policy environment currently facing the Fed remains quite complex: economic and job market resilience persists, but inflation continues to exceed the 2% target, requiring policymakers to continue weighing economic growth against price stability.

Boston Fed President Supports Rate Hike, Expects One More This Year

On the same day, Boston Fed President Collins also said she supported the Fed's rate hike decision last week. Collins noted that a moderate increase in the restrictiveness of the federal funds rate will help ensure that inflation sustainably returns to target. As the labor market is now in a more robust state, monetary policy can focus more on promptly restoring price stability, especially considering that inflation has been above target for five and a half consecutive years.

Collins also said she is among the Fed officials expecting another rate hike by the end of this year, and also anticipates that rates will remain steady in 2027.

According to the latest "dot plot," Fed officials have sharply divergent views on the policy path for 2027. While the median rate forecast indicates that the policy rate at the end of 2027 will be roughly the same as at the end of 2026, some officials expect rates to be noticeably higher.