The debate continues within the Federal Reserve over whether interest rates remain sufficiently restrictive. On one side, Federal Reserve Governor Stephen Milan believes the current economy lacks the strong price pressures needed to justify high interest rates, arguing that the policy stance is already tight and significant rate cuts are necessary within the year. On the other side, Richmond Fed President Tom Barkin emphasizes that monetary policy must remain cautious until inflation has fully returned to target, to ensure stability in the labor market.
In a media interview on Tuesday, Milan stated that he would prefer to see rate cuts "slightly more than one percentage point (100 basis points)" this year. He dissented from the Fed's decision last week to hold rates steady, having argued for a 25-basis-point cut at that time. Late last year, during the Fed's series of 25-basis-point cuts, Milan also dissented on multiple occasions, instead favoring larger 50-basis-point reductions.
Milan pointed out that when he examines the underlying inflation situation, he does not see obvious price pressures within the economy. He believes there is no significant supply-demand imbalance requiring a monetary policy response, and that high interest rates are more a result of certain "quirks" in how inflation is measured rather than actual price pressures themselves.
The divergence in views highlights the question of whether policy is already restrictive enough. In contrast to Milan, Richmond Fed President Tom Barkin places greater emphasis on the stability risks during the process of bringing inflation down.
Barkin stated that the interest rate cuts implemented last year provided a degree of "insurance" for the labor market, helping the economy remain resilient as inflation declined. He indicated that the Fed's current focus remains on completing the "last mile" of bringing inflation back to the 2% target. Although uncertainty has receded and there are signs of improvement in the economic outlook, risks persist, hiring activity remains concentrated in a few sectors, and inflation has not yet fully returned to the target range.
Fed officials held the benchmark interest rate steady last week within the target range of 3.5% to 3.75%. Following the meeting, Fed Chair Jerome Powell said that after three consecutive rate cuts last year, the current policy stance provides necessary flexibility for policymakers to navigate between employment and inflation risks.
Barkin also noted that the uncertainty stemming from last year's tariffs and other policy changes began to gradually fade early in 2026. Citing conversations with businesses, he said overall demand remains stable and expects that tax refunds, falling gasoline prices, and a more accommodative monetary environment will support the economy this year.
Simultaneously, he pointed out that financially pressured U.S. consumers are resisting companies' attempts to pass on tariff costs through price increases, which to some extent helps curb inflation. However, Barkin also issued a warning, stating that the current resilience of U.S. economic demand is heavily reliant on artificial intelligence infrastructure investment and spending by affluent consumers, and these two areas are interconnected.
"These two areas are linked," he said. "If AI investment cools, it could impact business investment and the stock market; and if the net worth of the affluent shrinks, it could in turn weaken their spending capacity."
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