Federal Reserve’s Barkin sees ‘no headway’ for higher rates if inflation persists

A top US central bank official has said that the Federal Reserve should not be afraid of raising interest rates to fight high inflation due to the potential for financial instability.

Federal Reserve Bank of Richmond President Thomas Barkin said that while policymakers should always be “sensitive” to financial stability, those concerns should not take priority over the central bank’s fight against persistent inflation.

“If inflation persists, or God forbid it accelerates, there is no bar in my mind to raising rates further,” he said in an interview to the Financial Times on Monday. He said he would advocate a “steady” approach that would “mitigate the harm of any potential over-correction”.

He said: “It is not clear to me that having a higher rate path poses a financial stability challenge. . . . I do not see an urgency to make a different decision because of the financial stability risks.”

Barkin’s comments come as the Fed grapples with a string of recent bank failures, raising concerns about the strain on the economy as lenders retreat.

The Fed raised interest rates for the tenth time in a row this month to combat inflation. Fed chair, Jay Powell, recently indicated that the central bank may consider pausing its monetary tightening campaign in early June to take stock of the economic situation, but he refused to rule out further rate hikes. slap down.

Barkin did not specify his policy preference for the Fed’s next policy meeting, although he said he is more optimistic now that demand in the economy is slowing.

“There is a plausible story that demand is about to fall meaningfully as fiscal stimulus wanes, destroying individual balance sheets, the lagged effects of rate changes, credit tightening and demand erosion, and soon a similar effect on inflation Will not. he added. “I’m still trying to be convinced that the story is going to turn into reality.”