Barkin: Fed Should Keep Raising Rates, But At A Slower Pace

Federal Reserve officials have signaled that monetary policy remains near a balance point, but Richmond Fed President Thomas Barkin warned that further tightening is likely required to tame inflation.

Barkin told CNBC's Steve Liesman on Thursday that the central bank faces a clear mandate to push interest rates higher. He noted that unemployment sits near record lows while inflation remains too high, creating a straightforward path for policy adjustment. The primary uncertainty, he argued, lies in the speed of those increases rather than the direction.

He favored a gradual approach, reasoning that the current environment contains substantial uncertainty. By moving slowly, the committee can absorb new data as it becomes available. This method aligns with his view that the economy requires careful calibration to avoid excessive restriction.

These comments come shortly after the Federal Open Market Committee voted to hold the benchmark overnight borrowing rate between 3.75% and 4%. The committee’s post-meeting statement indicated it is waiting for more information before deciding on its next move. In September, officials agreed that another rate hike was probable before the end of 2026. Market data from the CME Group's FedWatch tool now suggests a better than 80% probability of a hike in December, with an additional increase expected in 2027.

Barkin described the current policy stance as near neutral, meaning it neither suppresses nor stimulates growth. He observed that consumption accounts for roughly two-thirds of the economy and remains elevated. If the central bank were restricting the economy too much, he argued, consumption would likely be lower, suggesting the current stance is slightly accommodative.

He identified inflation as the most pressing risk. Barkin stated that he hopes the September rate hike and any future actions will impact price levels. He also pointed to artificial intelligence as a source of current price pressures, though he noted that the technology will eventually boost production and help ease inflation in the long run.

On the credit side, Barkin said the debt issuance flowing to hyperscalers is worth watching. He estimated this figure at more than $500 billion for the year. While he expressed confidence in the credit quality of major hyperscalers due to their cash generation, he warned that the intermediaries taking on these risks are less transparent. He questioned where the biggest risks lie within that intermediary sector.