Richmond Fed president Tom Barkin said Tuesday that he wants to keep interest rates “modestly restrictive” until he gains more confidence inflation is returning to the central bank’s 2% goal, warning about lessons learned from the 1970s.
“It makes sense to stay modestly restrictive until we are more confident inflation is returning to our 2% target,” Barkin said in a speech in Richmond, Va.
“It is critical that we remain steadfast,” he added. “We learned in the ’70s that if you back off inflation too soon, you can allow it to reemerge. No one wants to pay that price.”
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The Fed kept its rates on hold at its meeting last month following three consecutive cuts as central bankers grew more cautious about the future path of inflation and the potential effects of new trade, tax, and immigration policies from the Trump administration.
The central bank is expected to keep rates on hold at a meeting next month. But traders are now betting the Fed is likely to resume cutting in June and could do so again in September as they digest a survey that showed consumer confidence fell this month while inflation expectations surged.
The challenge for the Fed, Barkin said Tuesday, is there is a lot of uncertainty now with how policy changes from Washington will impact the economy, as well as with geopolitical conflicts and natural disasters.
Barkin noted that he had seen economic analyses of tariffs levied in 2018 under President Donald Trump’s first administration, and they concluded those duties increased inflation by about 30 basis points.
But he said the policies this time won’t be exactly the same, and policymakers don’t know whether recent experience with inflation will exacerbate or mitigate the impact this time. Barkin questioned whether firms will be more willing to pass costs on or if consumers will resist further price increases.
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He also pointed to uncertainty around deregulation, taxes, and spending, as well as immigration changes, and what impact all of that could have on the workforce.
“I prefer to wait and see how this uncertainty plays out and how the economy responds,” he said.
Barkin is the latest Fed official to offer some words of caution about the Fed’s stance. St. Louis Fed president Alberto Musalem last Thursday also aired some concerns about inflation.
“I believe it is appropriate to monitor economic conditions and the outlook before making any further adjustments to the stance of policy,” Musalem said during a speech at the Economic Club of New York.
