Richmond Federal Reserve President Thomas Barkin has cautioned that current inflation levels are still too high, though he has observed preliminary signs that price pressures may soon begin to ease. Data released last Thursday showed the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 4.1% year-over-year in May, marking the largest increase since April 2023. While the conflict in the Middle East has pushed up oil and other commodity prices, the rise in price pressures has become more broad-based.
Barkin stated in an interview on Sunday, "These numbers are simply too high." He added, "Without the continued effect of the federal funds rate, the labor market, or other factors that can push inflation down, it's difficult to be confident that inflation will return to the 2% target."
Barkin expressed encouragement as gasoline prices in his district fell rapidly following a recent drop in oil prices after a ceasefire agreement was reached between the US and Iran. However, he believes other factors are also pushing inflation higher, including the large-scale construction of artificial intelligence (AI) infrastructure. He indicated that the appropriate policy path would depend on observing economic developments in the coming months.
Earlier this month, Fed officials kept the target range for the federal funds rate unchanged at their policy meeting. A growing number of policymakers have warned that the Fed may need to raise rates this year to curb resurgent inflation. Some of Barkin's colleagues are particularly concerned about persistent price increases in the services sector, where inflation is typically more sticky.
Furthermore, inflation has remained above the Fed's 2% target for over five years and has become a national topic of concern, raising another worry: consumer inflation expectations could be affected, making the Fed's job of restoring price stability more difficult.
Barkin noted that price pressures from tariffs and oil price shocks should now be subsiding, which would help cool inflation. However, neither factor appears to have significantly dampened US consumer spending, which has remained robust over the past year. In a consumption-driven economy, this could pose a challenge to ultimately bringing inflation down to the Fed's 2% target.
Barkin also expressed concern about corporate behavior in the current inflationary environment. "When businesses set prices, they take the current level of inflation as a reference point, so I think inflation has some persistence," Barkin said. "I am indeed concerned about this, which is why I believe maintaining a moderately restrictive policy stance is reasonable."
He pointed out that businesses are facing higher input costs, but consumers are also starting to resist higher prices, limiting how much cost businesses can pass on. During a recent visit to western Virginia, local business leaders told him they had not yet decided on next year's employee pay raises. When gasoline prices were high, they thought they might have to offer larger raises, but with gas prices now lower, they may not need to.
Besides Barkin, several other Fed officials have recently warned about inflation pressures. Minneapolis Fed President Neel Kashkari said on Friday that due to widespread signs of inflation, he projected one rate hike this year in the economic forecasts released earlier this month.
"I am concerned about inflation, and it's not just about the Middle East situation; more importantly, broader inflationary pressures are building across the economy," Kashkari stated. He mentioned the recent US-Iran ceasefire agreement but noted Iran seemed to violate it almost immediately. "I don't trust Iran. To what extent will they comply? Will markets—including oil, fertilizer, and related markets—return to normal, or will they remain under pressure and uncertainty for a long time?"
Kashkari said he is not in a hurry to raise rates immediately and does not forecast further hikes in 2027, expecting the Fed to hold policy steady by then. However, he emphasized the need to watch incoming data. He had previously expected one rate cut this year.
Kashkari stated that policymakers remain committed to returning inflation to the Fed's target. "How do we get inflation back down in a reasonable timeframe without causing too much damage to the labor market? That's the challenge we are working on now," he said. He noted that a series of supply shocks to the US economy, including the impact of the US-Iran conflict this year, have complicated the fight against inflation.
He added that data center construction to support the AI industry "is certainly putting pressure on prices in certain sectors of the economy." Business leaders in his district have reported similar situations, citing generally rising input costs. Meanwhile, retailers observe a clear divergence among consumers: high-income groups continue to spend, while lower-income Americans are shifting to cheaper goods, visiting stores more often but buying less each time—suggesting it's becoming harder to make their paycheck last.
Kashkari also warned that while wage growth currently lags inflation, wages typically follow price increases with a delay, so wage growth could accelerate significantly, potentially making the Fed's inflation-cooling task harder. "If we expect real wages to return to their previous growth trajectory, then we should expect wage pressures to rise," Kashkari said. "This may not be a leading driver of inflation, but it could slow the disinflation process."
Kashkari noted the US labor market has improved compared to late 2025, when the Fed cut rates three consecutive times to support a weak job market. "I have indeed seen what I would call 'signs of recovery' in the labor market," he said.
Additionally, Chicago Fed President Austan Goolsbee stated that overall US inflation pressures remain too high, with core inflation trends particularly concerning. The Fed needs to see more signs of improvement before gaining greater confidence in the inflation outlook. Goolsbee noted the May PCE data was not entirely without positive signals. However, he emphasized the biggest current challenge is the risk of resurgent inflation, and the most important indicator to watch remains core inflation, which excludes food and energy prices.
"Looking at core inflation, it is still clearly too high and the trend is not ideal. We must see improvement in this measure," Goolsbee said.
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