Fed’s Barkin says “comfortable doing more” if inflation does not fall

By Howard Schneider

WASHINGTON (Reuters) – Richmond Federal Reserve president Thomas Barkin said Friday he is comfortable with further interest rate increases if coming data does not show that weakening demand for goods and services is feeding through to slower inflation.

“I am still looking to be convinced of the plausible story that slowing demand returns inflation relatively quickly” to the 2% target, Barkin said in comments prepared for delivery to the Maryland Government Finance Officer Association. “If coming data doesn’t support that story, I’m comfortable doing more.”

The Fed this week held the policy interest rate steady in a range between 5% and 5.25%, but new policymaker projections showed Fed officials feel rate may need to rise at least another half point by the end of the year.

Many investors now expect the central bank to resume rate increases at its meeting in July.

Barkin did not speak to that.

But he did say the focus remained on returning “stubbornly persistent” inflation to the Fed’s 2% target, from a current level more than twice that.

Barkin said he recognized that raising rates further “creates the risk of a more significant slowdown.”

But backing off too soon created even worse potential problems.

“The ’70s provides a clear lesson: If you back off inflation too soon, inflation comes back stronger, requiring the Fed to do even more, with even more damage,” Barkin said. “That’s not a risk I want to take.”

Barkin said he did believe that demand in the U.S. is now “softening.”

But “think of it as weaker but not yet weak,” Barkin said, adding that he regarded it as an open question whether inflation can fall while the labor market remains “robust” and higher-income consumers “are still spending.”