Fed’s Barkin says rate hikes are still on the table if inflation doesn’t continue to ease

Richmond Federal Reserve President Thomas Barkin said Wednesday that policymakers need to retain the option of raising interest rates if inflation doesn’t show enough progress coming down.

Markets largely expect the Fed has stopped raising rates and will start cutting in 2024. But Barkin said he’s not ready to commit to a particular policy path with so much uncertainty in the air.

“If inflation comes down naturally and smoothly, awesome, you know, there’s no particular need to do anything with interest rates if inflation steps down,” he told CNBC’s Steve Liesman during an interview at the CNBC CFO Council Summit.

“But if inflation is going to flare back up, I think you want to have the option of doing more on rates,” Barkin added. “I guess the bigger point is, there’s no precision that anyone can point to at exactly what the level of rates that exactly handles inflation and exactly the way you want to handle it. So you’re constantly trying to adjust on the fly as you learn more about the economy.”

Barkin spoke shortly after the Commerce Department reported that the economy grew at a 5.2% annualized pace in the third quarter. As growth has held strong, inflation is still above the Fed’s 2% annual target, though it has shown a consistent progression lower in recent months. The Fed’s preferred inflation measure of core personal consumption expenditures showed a 12-month rate of 3.7% in September and is expected to show a slightly lower reading in October.

Pricing in futures markets indicates the Fed could cut rates as much as four times, or a full percentage point, next year. Fed Governor Christopher Waller said Tuesday that he’d consider cuts if the inflation data shows progress over the next several months.

However, Barkin called the possibility of easing policy “a forecasting question” that he’s not ready to answer.

“I don’t see it as a there’s a right answer on rates or a wrong answer on rates,” he said, adding that he’s “skeptical” about inflation and thinks it’s going to be “stubborn” ahead.

Atlanta Fed President Raphael Bostic also offered commentary Wednesday, saying in an essay that he sees economic growth slowing substantially and believes inflation will come down further as well.

“Altogether, the research, data, survey results, and input from business contacts tell me that tighter monetary policy and tighter financial conditions more broadly are biting harder into economic activity,” Bostic wrote. “At the same time, I don’t think we’ve seen the full effects of restrictive policy, another reason I think we’ll see further cooling of economic activity and inflation.”

Bostic said his staff expects the inflation rate to decline to 2.5% by the end of 2024 and then get back to the Fed’s 2% target by the end of 2025.

Both Bostic and Barkin will be voters in 2024 on the rate-setting Federal Open Market Committee.