Inflation is likely to remain high and force the Fed to keep interest rates high for longer than investors expect, Thomas Barkin, president of the US Federal Reserve Bank of Richmond, said on Monday.
Barkin added that US economic data indicate an economy that is expanding while price growth is slowing, but the progress is not enough for the Federal Reserve to declare victory over inflation.
The economy is still growing - unemployment is still 3.9%, and as I showed a moment ago, inflation appears to be stabilizing. This is all good. But the job is not over yet, so we have to keep going until we get the job done.
US central bankers held their benchmark interest rate steady for a second time earlier this month to gather more information about the economy before their final meeting of the year on December 12-13. Inflation is slowing but remains very high, with the consumer price index, excluding food and energy, rising 4% in October from a year earlier. While the Fed targets a different measure of price growth, the target is 2%.
Barkin, who will be a voting member of the FOMC in 2024, said earlier this month that some economic slowdown would be needed to further reduce inflation. Last week, he said he was not convinced inflation was on a clear path towards the central bank's 2% target despite real progress in slowing prices in recent months.
The head of the Federal Reserve Bank of Richmond stressed that his focus is on bringing inflation back to the central bank's target. Pointing out that he believes that inflation is still high, which makes him support the scenario of interest rates remaining high for a longer period.
In response to a question about how long he expected interest rates to remain high, Barkin said that it would depend on the development of inflation.
The Federal Reserve is scheduled to release the minutes of its previous meeting on Tuesday. Officials kept the benchmark lending rate steady in a range of 5.25% and 5.5%, but economic reports leading up to the meeting showed broad strength and positivity.
