Barkin: Inflation improving but not yet low enough
Richmond Fed chief says target is 2%
With inflation decreasing but still not at its 2% target, the Federal Reserve still needs “to stay on the case,” Federal Reserve Bank of Richmond President and CEO Tom Barkin said Thursday at a conference hosted in Richmond by the Virginia Bankers Association and the Virginia Chamber of Commerce.
Inflation continued to slow in December 2022, decreasing to 6.5%, down from 7.1% in November, according to a Bureau of Labor Statistics report released Thursday, as gas prices and airfares lowered. The Fed’s increases in interest rates last year were done “quickly … but what we were doing was taking our foot off the gas,” Barkin said. “Now, it makes sense to steer more deliberately. The last two months’ inflation prints have been a step in the right direction, but I would caution that while the average dropped, the median stayed high.”
Following his speech, Barkin said that his preferred rate of inflation would be between 1.5% and 2.5%. “I think you have to be careful about declaring victory too soon,” he said, “because I think Fed credibility does matter.”
Barkin also noted a heterogeneity in business practices — some companies have reached their peaks in pricing, while others are still raising prices to improve their profit margins, which keeps inflation rates higher. That’s a different attitude from the past 20 years, when businesses kept costs from reaching customers whenever possible, he observed.
As for the forecasted 2023 recession — “the most predicted potential recession in memory,” Barkin said — “the data we’ve seen on spending, investment and employment keep pushing the timeline out, unless you are in housing or sell into a low-income customer base, or are a deal maker, or are dependent on digital advertising.”
One factor that seems to be easing is the labor shortage, at least in some sectors, Barkin said after his speech. “As I talk to employers, the pressures that were so serious a year ago on the labor side are easing, at least for professionals, who are increasingly nervous about [a] recession or layoffs in tech. For frontline service workers, [companies] have found ways to automate [to] become more efficient. [But] it feels to me that there’s significant wage pressures in the skilled trades — nurses, plumbers, truck drivers, carpenters — the demand is still very high and the supply is just not there.”