Richmond Fed President Tom Barkin said the Federal Reserve's policy direction is largely settled given elevated inflation and a sturdy economy, but he left open how fast borrowing costs should rise from here.
"Inflation's high, demand is solid, unemployment is relatively low. So I think the direction of travel is pretty straightforward," Barkin said Friday on SiriusXM's Business Briefing, when asked whether the central bank would need to tighten again. "The question, though, is pace ... We signaled a gradual approach. Gradual makes sense when you're not much behind the curve, where you want time to learn."
Barkin, who does not vote on rate decisions this year but rotates into a voting seat next year, said a gradual approach remains appropriate for now. He described cost pressures as broad-based across his mid-Atlantic and southeastern district, with businesses reporting higher expenses for everything from diesel fuel to computer chips to skilled labor.
After roughly four or five years of elevated inflation, he said, firms find it easier to justify passing those costs to customers. "That lived experience of inflation does affect future inflation, unless of course the Fed does something about it," he said.
He also pointed to a less conventional source of price pressure: the surge of investment in artificial intelligence, which he said is straining supply chains and adding to demand-side inflation of a kind the Fed can do little to suppress. According to Barkin, business contacts still describe demand as firm, with softness confined mainly to the nonprofit and housing sectors.
The remarks came after the Fed left rates unchanged at this week's meeting but revised its policy statement to say that "the accumulation of more information" would help determine the path ahead. Many analysts read the new wording as a hint that further tightening is likely unless inflation cools unexpectedly. Economic data released this week showed both growth and price pressures running hotter than forecast.
Investors currently expect policymakers to approve another quarter-point increase at the December 8-9 meeting. Expectations for the full extent of tightening have shifted, however, alongside a recent pullback in equity markets that could weigh on consumer spending and take some edge off cost pressures.
Note: Voter status refers to the rotating seats on the Federal Open Market Committee.
The debate over pace matters for markets because it shapes how quickly borrowing costs reach a level that restrains demand. A slower path would give policymakers more time to read incoming data, but it also risks letting inflation expectations become further entrenched after several years of above-target price growth. For investors, the signal from regional Fed officials in the weeks before December will be closely watched for any shift toward a faster or slower trajectory.