Richmond Fed President warns about Fed inflation target

Richmond Fed President Thomas Barkin said Tuesday that the Fed could lose credibility if it considers changing its 2% inflation target before reaching it. Richmond Fed President Thomas Barkin noted at an event in Danville, Virginia, that the inflation target is not unattainable. “2% is not some magic number that we will never get to,” he said. The Fed’s preferred inflation gauge rose 3% in June from the same period a year earlier, the smallest increase in more than two years. That is down from 7% last year, when Fed officials embarked on their most aggressive policy tightening campaign in years. The U.S. central bank last month raised its benchmark interest rate to a target range of 5.25% to 5.5%, the highest in 22 years. The debate is shifting from how high interest rates should be going forward to how long they should stay high. Barkin, who does not have a vote on monetary policy this year, declined to say when interest rates would begin to be cut, but said, “The criteria that would warrant a rate cut include seeing inflation cool month-to-month and demand stabilizing.” The monthly Bloomberg survey of 68 economists, conducted Aug. 11-16, showed forecasters do not expect the Fed to cut rates until the second quarter of next year. In a speech Tuesday, Barkin repeated remarks he made on Aug. 3 and Aug. 8 that a more-than-expected easing of inflation in June could be an indication that the U.S. economy is making a “soft landing” and that price stability can return to normal without a damaging recession. Even if a recession does occur, fewer shifts in the workforce due to strong demand for customer-facing workers, latent consumer demand for supply-constrained goods such as cars and cautious moves by businesses to manage inventory would reduce the severity of a potential recession, Barkin said.