Fed's Barkin: Rate hike still possible to meet inflation target

Federal Reserve policymakers continue to weigh the possibility of additional interest rate hikes to ensure inflation returns to target, Richmond Fed President Thomas Barkin said on Friday.

Speaking at an event in Virginia, Barkin noted that while recent inflation data has shown improvement, the central bank’s policy stance remains data-dependent. The Fed’s current benchmark rate, which sits in a target range of 5.25% to 5.50%, is at its highest level in more than two decades.

"It’s still an open question whether we’ll need to raise rates further to meet our inflation target," Barkin stated. His remarks underscore the uncertainty facing the Federal Open Market Committee (FOMC) as it navigates the final stages of its tightening cycle.

The Fed has raised rates by 525 basis points since March 2022 to combat persistent inflation, which peaked at over 9% in mid-2022 but has since eased to around 3.3% as of the latest data. Policymakers have signaled a cautious approach, emphasizing that decisions will be guided by incoming economic indicators rather than predetermined paths.

Barkin’s comments follow mixed signals from other Fed officials. While some have suggested a pause in hikes could be warranted, others have indicated that further tightening may still be necessary if inflation proves stickier than expected. The Fed’s next policy meeting is scheduled for March 19-20, where officials will assess whether to hold rates steady or proceed with another increase.

Market expectations currently point to a high probability that the Fed will maintain its current rate level through mid-year, with cuts not fully priced in until later in 2024. However, Barkin’s remarks highlight the risk of a hawkish surprise if inflation fails to converge toward the Fed’s 2% goal.

The Fed’s dual mandate of price stability and maximum employment remains at the forefront of its decision-making process, with officials balancing the risks of overtightening against the need to ensure inflation remains sustainably under control.