Barkin Says Fed Should Move With Care as Inflation Stays High

GREER, S.C. — Inflation is the risk that matters most right now, Richmond Fed President Tom Barkin argued on Monday. Everything else in the economy, for the moment, is holding up.

Barkin made that case in Greer, where the Greater Greer Chamber of Commerce hosted his remarks. Businesses are earning, investing and keeping their workers, he said. Households are stretched, but they are still spending.

That balance is why, in Barkin’s telling, the policy direction is relatively straightforward — and why the pace still has to be careful. The risks he sees could still knock demand off course.

“In sum, today, with demand healthy and inflation stubbornly elevated, the appropriate direction of monetary policy is relatively straightforward. However, risks to the demand outlook remain easy to envision. Because of that, it is wise to move policy with care,” Barkin said.

He walked through the economy as a set of rooms. Start with the boardroom, where companies are planning for 2027.

Earnings, by his account, have been strong. Second-quarter earnings were up sharply — the median gain for S&P 500 companies was 15 percent, and in aggregate it was 31 percent — and Barkin said third-quarter results have been coming in at a comparable pace. Business investment rose 12.7 percent in the third quarter, and bankers told him loan pipelines are healthy beyond the artificial intelligence buildout.

Firms are also holding on to workers. They are slow to hire, Barkin said, but they are not firing, layoffs remain muted and initial unemployment claims sit at lows not seen in more than 55 years.

The Kitchen Table

The picture at the kitchen table is tighter. The University of Michigan’s consumer sentiment index has recorded its five lowest months ever this year, Barkin said, and September PCE inflation came in at 3.6 percent headline and 3.1 percent core.

People are still spending. Nominal consumption excluding food and energy grew at an annualized 6.9 percent over the last six months, helped by a job market that has kept unemployment at or below 4.5 percent for the longest streak on record. October unemployment was 4.1 percent.

How households manage is another matter. Barkin said consumers are trading down to private labels and discount stores, switching from beef to cheaper proteins, buying used instead of new, repairing rather than replacing, and in some cases saving less or drawing on savings.

Costs and the December Meeting

Businesses, meanwhile, report cost pressure across the board — health insurance, fuel, freight, travel, memory chips, interest rates and tariffs among them. Some firms held off passing those costs on while they waited to see whether the conflict in the Middle East would be short. Barkin said firms now tell the Fed they are trying to pass on increases they had absorbed, and that customers seem more used to accepting them than before the pandemic.

“Should the economy remain on its current path, the risk lies on the inflation side of our dual mandate,” he said.

He also pointed to artificial intelligence as a risk in both directions. If AI underdelivers, investment could pull back and stock prices could follow, cutting the asset-fueled spending of wealthier households. If it overdelivers, it could displace more workers than expected and pull spending down that way instead.

Investors currently expect the Fed to raise rates at its Dec. 8-9 meeting, according to Reuters. Barkin does not vote on policy this year. He becomes a voting member of the rate-setting committee in 2027.