Richmond Federal Reserve President Thomas Barkin has cautioned that the current level of inflation remains unacceptably high, though he has observed some initial signs that price pressures may soon begin to ease.
Data released last Thursday showed the personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, rose 4.1% year-on-year in May, marking the largest increase since April 2023. While conflicts in the Middle East have pushed up oil and other commodity prices, the rise in price pressures has become more broad-based.
"The data is simply too high," Barkin stated in an interview on Sunday. He added, "Without the continued influence of the federal funds rate, the labor market, or other factors that could drive inflation down, it is difficult to have confidence that inflation will return to the 2% target."
Barkin expressed encouragement that gasoline prices in his district had fallen rapidly following a recent ceasefire agreement between the U.S. and Iran, which led to a decline in oil prices. However, he noted other factors are also contributing to higher inflation, including the massive construction of artificial intelligence (AI) infrastructure. He stated that the appropriate policy path would depend on observing economic developments in the coming months.
Earlier this month, Fed officials held the target range for the federal funds rate steady at their policy meeting. A growing number of policymakers have warned that the central bank may need to raise interest 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 tends to be more sticky. An additional worry is that inflation has now been above the Fed's 2% target for over five years and has become a national topic of concern, which could influence consumer inflation expectations and make the Fed's task of restoring price stability more difficult.
Barkin suggested that price pressures from tariffs and oil price shocks should now be fading, which would help cool inflation. However, he noted that neither factor appears to have significantly dented U.S. 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 voiced concern about corporate behavior in the current inflationary environment. "When setting prices, businesses take current inflation levels into account, so I believe inflation has some persistence," Barkin said. "I am indeed concerned about this, which is why I believe maintaining a moderately restrictive policy stance is justified." He pointed out that while companies face higher input costs, consumers are also starting to resist higher prices, limiting how much of these costs can be passed on.
During a recent visit to western Virginia, local business leaders told him they had not yet decided on next year's wage increases for employees. When gasoline prices were rising, they thought they might have to offer larger raises, but with fuel prices now receding, they may no longer need to do so.
Barkin is not alone in warning about inflation pressures. Minneapolis Fed President Neel Kashkari stated on Friday that, due to broadening signs of inflation, he projected one interest 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; it's more about the broader inflationary pressures building across the economy," Kashkari said.
Kashkari mentioned the recent U.S.-Iran ceasefire agreement but noted that Iran seemed to violate it almost immediately. "I don't trust Iran. To what extent will they comply? Will markets—including oil, fertilizer, and other related markets—return to normal, or will they remain under some pressure and uncertainty for a long time?"
Kashkari said he is not in a hurry to raise rates immediately and is not forecasting further hikes in 2027, expecting the Fed to hold policy steady by then. However, he emphasized the need to watch future data. He had previously projected one rate cut for this year.
Kashkari stated that policymakers remain committed to restoring inflation to the Fed's target. "How do we get inflation back down in a reasonable timeframe without doing too much damage to the labor market? That is the challenge we are grappling with right now," he said.
He noted that a series of supply shocks to the U.S. economy, including the impact of the U.S.-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, with input costs rising broadly. Meanwhile, retailers are observing a clear divergence among consumers: higher-income groups continue to spend, while lower-income Americans are shifting to cheaper goods and visiting stores more frequently but buying less each time—suggesting they are increasingly struggling to make their paychecks last.
Kashkari also warned that while wage growth currently lags inflation, wages typically follow price increases with a lag, so wage growth could accelerate noticeably in the future, potentially making the Fed's job of cooling inflation more difficult.
"If we expect real wages to get back on 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 process of inflation coming down."
Kashkari noted that the U.S. labor market has improved compared to late 2025, when the Fed cut rates three times in a row to support a weak job market. "I have indeed seen what I would call 'signs of recovery' in the labor market," he said.
In addition, Chicago Fed President Austan Goolsbee also stated that overall U.S. inflation pressures remain too high, with core inflation trends particularly concerning. The Fed still needs to see more signs of improvement before gaining greater confidence in the inflation outlook.
Goolsbee noted that the May PCE data was not entirely without positive signals. However, he stressed that the Fed's biggest current challenge remains the risk of resurgent inflation, and the most important indicator to watch for this risk is still core inflation, which excludes food and energy prices. "If you look at core inflation, it is still clearly too high, and the trend is not favorable. We must see improvement in this measure," Goolsbee said.
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