PALO ALTO, California (Reuters) – Richmond Federal Reserve Bank President Thomas Barkin said on Friday that he could envision a scenario where the central bank pushes the U.S. benchmark policy interest rate to the 5.5%-5.75% range that some in financial markets are now betting it will.
“That would suggest inflation was in fact more persistent than a lot of people are forecasting,” Barkin told reporters after a talk at the Stanford Institute for Economic Policy Research in which he outlined why he personally worries inflation will be slow to cool, forcing the Fed to raise rates more.
“It’s not what I’m hoping for but I could certainly imagine it,” he said. “My hypothesis has been that now that we have gotten ourselves into restrictive territory, as we did last year, we have the opportunity to, I’ll call it, test and learn what happens to the demand, what happens to employment, what happens to inflation, as rates go up at a more gradual pace than they did last year.”
Barkin said it’s “entirely possible” that inflation cools faster than he expects, which would imply a shallower rate path. “But I think it’s entirely possible that it persists, which would require us to do more,” he added. “I think when you are on a more deliberate rate increase path it does give you a lot more flexibility in terms of the ability to move for longer, or to higher, if you need to.”
By this time next year, Barkin said, he does not expect the Fed to have started any rate cuts.
(Reporting by Ann Saphir; Editing by Leslie Adler and Alistair Bell)