Fed’s Barkin prefers rate hike option, not cut speculation

The president of the Bank of the Federal Reserve of Richmond, Thomas Barkinsaid Wednesday that it is “skeptical” that inflation is on its way to falling to 2% and wants the option of another inflation increase rates in case it gains strength.

“There is no particular need to do anything about interest rates if inflation is falling,” Barkin said in an interview on CNBC. “But if the inflation is going to skyrocket again, I think we must have the option to do more with rates”.

Some of Barkin’s colleagues at the Fed have said they feel more confident that inflation is on its way to 2%a view that strengthens the argument for leaving the central bank’s policy rate at its current range of 5.2%-5.5%.

“I’m still in the ‘seeking to be convinced’ category, rather than the ‘convinced’ category.”Barkin said.

Financial markets discount that there will be no more increases in the cost of credit. Traders expect the rate cuts to begin in May 2024 and expect it to end next year more than a percentage point below where it currently stands, according to interest rate futures.

For Barkin, that’s a bet on a much easier downward path for inflation than he expects, especially given the strong economic growth that he believes is encouraging companies to keep trying to raise prices.

“If you believe, as I do, that inflation is going to be more persistent than I would like it to be, then I think talk of cutting rates at this time is premature.”“, said.