- Barkin signaled support for more hikes, delivered slowly. “The direction of travel is pretty straightforward — the question, though, is pace,” Richmond Fed President Tom Barkin said in a SiriusXM radio interview on Friday, adding that “a gradual approach is a good way to go.” He argued gradual increases make sense while inflation remains high amid low unemployment and solid demand.
- The data back his view of a still-hot economy. On Thursday, a report showed US GDP rose the most in a year in the quarter ending in September, driven by strong consumer spending, while the Fed’s preferred inflation gauge accelerated to a 3.6% year-on-year pace in September. Barkin said there hasn’t been a significant pullback in spending, as workers still have jobs in a low-fire, low-hire environment.
- He comes two days after the Fed held steady. The Fed kept rates unchanged on Wednesday, saying the “accumulation of more information” would help guide its next moves, and Chair Kevin Warsh said financial conditions were tighter than in September but that he was “unwilling” to call them tight. Barkin said the Fed signaled a gradual approach in September, when it raised its benchmark to a target range of 3.75% to 4%.
- AI spending is now part of the inflation debate. Barkin said policymakers might need to lean against a surge in investment driven by the artificial intelligence build-out, calling it “demand-side inflation,” unlike the supply shock from the war on Iran that pushed up energy prices.
What Happened?
Richmond Fed President Tom Barkin said on Friday, in an interview on SiriusXM radio, that gradual interest-rate increases make sense given high inflation, low unemployment and solid economic demand. “Gradual makes sense when you’re not much behind the curve, where you want time to learn both from the economic environment and the external environment,” he said. His comments came two days after the Fed left rates unchanged at a target range of 3.75% to 4%, following a September hike. Barkin also said consumers are proving creative in how they spend, according to Bloomberg.
Why It Matters?
Barkin’s remarks reinforce that the Fed’s next move is more likely up than down, even after it paused this week. By framing the debate as one of pace rather than direction, he suggests further hikes remain on the table, which matters for Treasury yields, mortgage rates and stock valuations. His focus on AI-driven investment is notable: if the data-center and chip build-out keeps fueling demand, the Fed may treat it as a reason to keep tightening rather than as a temporary boost. That contrasts with the energy-price shock from the Iran war, which he described as a supply-side issue.
What’s Next?
“We’ll see how long that pressure lasts. But if we do see a continued surge in demand, that would be the kind of thing you might want to lean against,” Barkin said. Investors will watch upcoming inflation and jobs data, along with other Fed speakers, for signs of whether policymakers lean toward another hike at their next meeting. Any cooling in consumer spending or AI investment would support the case for a slower pace.
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Source: Bloomberg
