Fed officials urge careful policy moves as inflation risk persists
Persistent price pressures keep inflation at the center of the Federal Reserve's policy debate as officials weigh the next step for interest rates. Richmond Federal Reserve President Tom Barkin says strong demand and rising business costs support further tightening, but warns policy should still move carefully because of risks to employment.
Highlights
- Barkin states inflation remains the main risk as businesses plan to pass higher costs on, keeping inflation above the Fed's 2% target.
- Investors expect a rate hike at the Dec. 8-9 Fed meeting, with Barkin emphasizing a straightforward policy stance amid healthy demand and persistent inflation.
- Barkin warns that AI developments could create major labor market volatility, affect business investment, and potentially raise unemployment if expectations misalign.
Barkin outlines inflation risks and rate stance
As reported by Reuters, Barkin says businesses continue to face higher costs and are planning to try to pass those increases on, reinforcing his view that inflation remains the greater risk for the U.S. central bank. In remarks prepared for delivery to the Greater Greer Chamber of Commerce in South Carolina on Monday, he says that after nearly six years of inflation above the Fed's 2% target, the risk lies on the inflation side of the central bank's dual mandate.He says the direction of monetary policy is relatively straightforward with demand healthy and inflation stubbornly elevated. Investors currently expect the Fed to raise rates at its Dec. 8-9 meeting, and Barkin is due to become a voting member of the policy-setting committee in 2027.
AI uncertainty adds labor market concerns
Even so, Barkin says it is wise to move policy with care because of risks that could hit the labor market and the Fed's maximum employment goal.He describes the buildout of artificial intelligence technology as particularly consequential, pointing to large swings in technology stocks and in market expectations for Fed rate increases in the days after last week's U.S. midterm elections. Barkin says weaker-than-expected AI results could curb business investment, stock prices and consumer spending, undercutting a key source of growth and potentially lifting unemployment. He adds that AI could also overdeliver and displace more workers than expected.
Earlier, we reported that UBS Global Wealth Management projected a longer Fed tightening cycle, including a March 2027 rate hike.
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