WOODBridge, Va. (Reuters) – The president of the Richmond Fed, although it may take time for data to show that inflation pressures have begun to ease, has “There are hopeful signs,” Thomas Barkin said on Friday.
“COVID appears to be entering the rearview mirror. Supply shocks are easing…some big retailers have declared excess inventory. Housing appears to be settling down. Employers are hiring more Success … we have seen broad commodity prices fall from peak levels,” Barkin told the Virginia Prince William Chamber of Commerce. Corporate executives “still see their increased pricing power as temporary. They see it as an episode, not a regime change.”
However, this has not changed in the high-level inflation data It was clear, and Barkin said the Fed would “stick to” rate hikes and “won’t declare victory prematurely.” “Inflation should come down. But I don’t think it will come down immediately or predictably,” Barkin said. “We’ve had multiple shocks…and the big ones just take time to soften.”
The Fed’s preferred inflation gauge for August continued to rise at an annual rate of 6.2%, more than triple the rate of the Fed 2% target. Measures to smooth out volatile food and energy prices, sometimes considered a better indicator of underlying price pressures, rose to 4.9 percent from 4.6 percent.
The Federal Reserve last week approved a third straight quarterly rate hike and has now moved its target policy rate from near 0 in March to a range between 3 and 3. 25%, one of the fastest monetary policy shifts in decades.
Further rate hikes are expected in future Fed meetings.
In response to criticism that the Fed’s failure to raise rates early has made inflation more persistent, Barkin said, “In hindsight, the rate hikes made sense”
“In theory, if monetary policy is different enough, maybe it will make a difference. But how fast do we have to move to a significantly different place?” Barkin said. “Sick workers will still have to stay home. Automakers will still be short of chips. Russian oil and Ukrainian wheat supplies will remain disrupted.”