The chief of The Richmond Federal Reserve said Tuesday that high inflation probably won’t dissipate quickly barring a sharper slowdown in the U.S. economy.
Thomas Barkin said businesses are inclined to keep raising prices so long as there’s strong demand among customers. Demand would have to slow markedly to get businesses to back off, he said.
“[Inflation] is going to be more stubborn than many people would hope,” he said in an virtual interview sponsored by the National Association of Business Economists.
The rate of inflation appears to have gotten stuck in the 4% to 5% range after coming down from a 40-year high of 9.1%. The Fed is aiming to get annual inflation back down to its 2% target.
Barkin indicated he was undecided on whether to support another increase in interest rates at the Fed’s next policy meeting on June 13-14. The Fed has raised rates for 10 straight meetings in an effort to tame inflation, putting a key short-term rate at a top end of 5.25%.
“There is a lot of uncertainty of where rates need to go,” said Barkin, though he called the current level “restrictive.” That’s central bank lingo for a level of interest rates sufficient to slow the economy.
Yet Barkin also implied that rates might not be restrictive enough. He noted that Americans are still spending lots of money, traveling and flying in record numbers. They are also buying lots of new cars.
He said businesses will keep raising prices — in part to cover their own rising costs — until demand drops off and they are forced to pull back.
Barkin is not a voting member this year of the Fed’s interest-rate setting panel.
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