Richmond Fed President Barkin said the Fed was determined to keep high inflation in check, and that the effort might trigger a U.S. recession.
The governor spoke at an event in Ocean City, Maryland on the 19th. “We are committed to returning inflation to our 2% target and will take the necessary steps to achieve that,” he said. A return to 2% inflation might be achieved without a “significant decline in economic activity”, he said, but acknowledged that there were risks.
“There are ways to keep inflation under control, but there is also the possibility of a recession along the way,” Barkin said.
The Federal Open Market Committee (FOMC) raised interest rates by 75 basis points (bp, 1bp = 0.01%) at its two consecutive meetings in June and July to curb the highest inflation in regarding 40 years. However, there is a difference of opinion among officials regarding the amount of rate hikes at the September meeting.
September US interest rate hike gives mixed signals
“There is still a lot of time until September,” Barkin told reporters following the speech, adding that there would be eight weeks between the July and September meetings. He said the Fed’s decision on the amount of rate hikes needed at its September meeting would depend on how data show a strong U.S. economy and a trend toward slower inflation.
Birkin said it was important to raise the policy rate into “depressive” territory. When the policy rate hits that area, it puts downward pressure on inflation. He himself “has been in favor of front-loading” rate hikes, but said there was some uncertainty as to which rate level would be considered neutral. A neutral interest rate is a theoretical level that neither accelerates nor decelerates the economy.
Original title:Barkin Says Fed Will Curb Inflation Even at Risk of Recession(excerpt)
(I will add and update the remarks of the governor from the 4th paragraph onwards.)
