Richmond Fed President Tom Barkin.
Inflation pressures have been so persistent this year in part because businesses have been able to pass along higher prices to consumers.
One reason the Federal Reserve hiked interest rates last week is to try to get companies to reconsider further price increases, Richmond Fed President Tom Barkin said in a speech Tuesday and in comments to reporters Thursday.
Rate hikes show the Fed is taking action to combat inflation, and that sends a signal to the company leaders setting prices that they may soon lose market share, he said.
Rate hikes could "influence relatively quickly their wage and price decisions," Barkin said.
Companies selling to other businesses have been able to raise prices.
In addition, companies with wealthy consumers have been finding less resistance than in the past, Barkin said. That's because people who own their own homes and are invested in the stock market are less price-sensitive.
People who sell to lower- and moderate-income consumers are getting penalized by their customers in some cases for raising prices, but they're still willing to try, he said.
"I'm increasingly finding firms willing to take their chances," Barkin said.
That's because there are more costs to pass on.
"The intensity and frequency of cost pressures are up - from tariffs and oil prices to be sure, but also from AI build-out spillovers, healthcare, transportation or commodity prices. I found myself reading up recently on water levels in the Panama Canal," Barkin said.
"The net of all this is more inflation pressure. And that's why we needed to act," he added.
The Fed decided unanimously to hike rates last week by a quarter point, to a range of 3.75% to 4%. It was its first rate hike since 2023.
In their speeches since the move, Fed officials have expressed concern about inflation, as companies have been hit by the large supply shocks.
These supply shocks "have come more frequently, hit harder and lasted longer," Chicago Fed President Austan Goolsbee said in a speech on Monday.
Fed governor Michael Barr said in a speech Wednesday that more rate hikes will likely be needed to get inflation down to the central bank's 2% target in a timely fashion.
Sixteen of 18 top Fed officials indicated that they expect another rate hike before the end of the year, and there is significant support for one more move in 2027.
Financial markets are pricing in three more quarter-point rate hikes from the Fed by March.
When top executives of companies meet to set prices for 2027, Barkin said he hopes "they're hearing sounds that say the Fed is focused on inflation, [and] is doing something about it.
"I think that might well impact how they think of price-setting going forward," he said.
-Greg Robb
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