The president of the Richmond Federal Reserve on Thursday said the speed at which the U.S. central bank raises interest rates to head off high U.S. inflation will depend on how quickly price pressures recede.
Thomas Barkin, in a speech to Virginia business leaders, said “the timing and pace of any rate moves” would depend on the path of inflation over the next year.
The Fed’s long-run goal is to reduce inflation to an average of 2% a year. U.S. inflation, as measured by the consumer price index, surged to a nearly 40-year high of 7% in 2021.
“The closer that inflation comes back to target levels, the easier it will be to normalize rates at a measured pace,” said Barkin, who admitted he underestimated the rise in inflation last year.
“But were inflation to remain elevated and broad-based, we would need to take on normalization more aggressively, as we have successfully done in the past,” he said.
Barkin did not specify how many times he thinks the Fed will raise interest rates in 2022 or when the process of “normalization” would begin.
“Forecasting isn’t easy,” he quipped. “I’m told economic forecasters were created to make weather forecasters look good.”
The central bank has signaled that it likely to raise interest rates several times this year after it stops a separate bond-buying program that was also designed to keep rates low.
One of Barkin’s biggest worries is the labor market. He predicted the U.S. labor shortage could be prolonged.
“The trends have been clear for a while: Fertility is down, immigration has slowed and our workforce is aging,” he said. The pandemic has made the problem worse by spurring more retirements and making it harder for working people to care for kids and the elderly.
Barkin is not a voting member this year of the Fed’s interest-rate setting panel known as the Federal Open Market Committee.
