Barkin: Fed 'leaning against the wind' to curb inflation
"We believed inflation was temporary. ..." the Richmond Fed president said in
The president of the <a href="https://www.richmondfed.org/" target="_blank">
In the first of a pair of recent speeches, <a href="https://www.richmondfed.org/about_us/our_leadership_governance/tom_barkin" target="_blank">Fed President
Speaking to a different audience at a technology conference in
"As a result, our efforts to stabilize inflation expectations could require periods where we tighten monetary policy more than has been our recent pattern," Barkin said at the
What that means to consumers, businesses and investors is that the Fed remains on course to raise its overnight interest rate again in early November, as financial markets already expect, as it reverses a monetary policy that he said mistakenly viewed inflation as "transitory" a year ago.
"I think it is great that the Fed is now finally acknowledging that its aggressive monetary policy is a major cause for today's inflation," said
In his speech to the
"We believed inflation was temporary. ... History taught us not to overreact to short-lived supply shocks - it usually doesn't make sense to constrain an economy to fight a shock that will go away on its own," he said. "But inflation didn't fade as we had expected."
Barkin said the Fed's monetary policy wasn't the only factor driving inflation. The most obvious were global supply chain disruptions, most notably because of the pandemic and the Russian invasion of
"With perfect hindsight, it would have made sense to have ended asset purchases and raised rates earlier," he said last week. "But sick workers would still have had to stay home. Car manufacturers would still have been short [semiconductor] chips. Russian oil and Ukrainian wheat supplies would still have been disrupted."
Engelke called the discussion of money supply "the best part of the speech," but he also cautioned against underestimating the effects of rising rents and wages, as well as a decline in labor force participation that the Richmond Fed noted last week has been lagging, particularly in
The hope, expressed in Barkin's speech in
"But what if we are in a new era, one in which we face inflationary headwinds?" he asked.
His answer is that the Fed will continue to "lean against the wind," maintaining its long-term goal of keeping inflation at 2%, but with the target averaged between periods of higher and lower prices.
"We will need to be crystal clear that a growing economy and maximum employment require stable prices and that we will remain committed to addressing inflationary gusts," Barkin said.
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