Fed’s Barkin Warns Inflation May Prove Persistent, Says Further Rate Hikes Bear Watching

Inflation pressures may last longer than expected even after the Federal Reserve raised interest rates last week, raising the risk that elevated price gains become entrenched.

Thomas Barkin, president of the Federal Reserve Bank of Richmond, said at an event in Baltimore on September 22 that recent supply shocks are not merely temporary and continue to put upward pressure on prices across the economy, Bloomberg reported.

"These shocks may fade over time, but that is likely to take a considerable period," Barkin said. In the meantime, he said, there is a risk that today’s high inflation will shape future price increases as well.

The Fed last week raised its benchmark interest rate by 0.25 percentage point for the first time in more than three years, taking the target range to 3.75% to 4.00%. The median projection from Fed officials pointed to one additional increase this year and no further hikes next year. Still, eight officials projected that the policy rate at the end of next year would be 0.5 percentage point higher than its current level.

Barkin said the Fed remains committed to bringing inflation back to its 2% target and that last week’s rate increase would help. He did not offer a judgment on whether further hikes will be needed or how many there should be.

On the inflation outlook, Barkin outlined two scenarios. Inflation could cool quickly as supply shocks linked to energy prices and tariffs ease. But fresh cost pressures and resilient demand could also combine to keep inflation elevated for an extended period.

He said some price pressure stemming from energy costs and tariffs should ease, while emphasizing that appropriately restrictive monetary policy will play an important role in containing inflation.

Barkin also said the U.S. economy and labor market remain solid. Businesses say economic conditions are improving, and signs of overheating are not evident across the broader economy outside the artificial intelligence sector.

Separately, Susan Collins, president of the Federal Reserve Bank of Boston, backed last week’s rate increase. Collins said improving labor-market conditions give monetary policy room to focus on price stability, and she supports one additional rate hike this year. She expects the benchmark rate to remain unchanged next year.