Fed’s Barkin: Won’t prejudge outcome of Fed’s September policy meeting

Thomas Barkin, President of the Federal Reserve Bank of Richmond has emphasized the need for the Fed to be open to the possibility of the US economy reaccelerating rather than slowing, which could have implications for the central bank’s inflation fight. The US Dollar Index clings to daily gains above 103.50 following these comments.

“If inflation remains high and demand gives no signal it is likely to drop, that would require tighter monetary policy,” Federal Reserve Bank of Richmond President Thomas Barkin said on Tuesday, as reported by Reuters.

“Consumer spending, economic strength make it possible the US economy could reaccelerate before inflation cools,” Barkin added but noted that he will not prejudge the outcome of the Fed’s September 19-20 policy meeting.

Retail sales in July were stronger than expected, and consumer confidence rose, suggesting that the reacceleration scenario has come onto the table. If the Fed is convinced that inflation remains high and demand is not signaling a decline, it would make the case for further tightening of monetary policy through higher interest rates.

Retail sales rose 0.7% in July, and the economy grew at a 2.4% annualized rate in the second quarter, well above the level Fed officials believe would allow inflation to cool. Barkin will not prejudge what the central bank should do at its meeting next month, which is expected to leave its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range.

Inflation has declined in recent months, but it remains well above the Fed’s 2% target. Officials are also discussing the extent to which the economy has fully absorbed the aggressive rate hikes delivered by the Fed since its monetary tightening campaign in March 2022.