Richmond Federal Reserve (Fed) official Thomas Barkin warned that interest rates may continue to be kept high until inflation returns to the 2% target.
Speaking at an event of the Maryland Bankers Association, held in Baltimore on 3/1, Barkin emphasized:
"The risk of accelerating inflation remains, given the strong economy and increasingly clear wage pressures."
He also shared his views on the differences within the Fed:
"I belong to the group that wants to keep interest rates high for longer, while some others are more inclined to cut interest rates sooner."
Fed divided on interest rate policy
Barkin's statements once again highlighted the disagreement among Fed officials regarding the interest rate strategy. While some officials support continuing to cut interest rates, many are still concerned about the risk of uncontrolled inflation in an increasingly unstable economic environment.
According to Barkin, the US economic outlook for this year remains positive, driven by strong consumption and optimistic business sentiment thanks to tax cuts and regulatory policies from the new administration. However, he also warned that immigration and trade policies could drive up labor costs and prices, increasing inflationary pressures.
In 2024, the Fed has cut interest rates three times, a total reduction of 1%. However, the personal consumption expenditures (PCE) index - the Fed's preferred inflation measure - has remained high, between 2.5% and 2.8% for more than half a year.
At the December 2024 meeting, Fed officials showed they want to slow the pace of interest rate cuts, with a plan to cut an additional 0.5% in 2025. Investors also expect the Fed to keep interest rates unchanged at the meeting at the end of January, currently fluctuating at 4.25-4.5%.
