Richmond Fed’s Barkin Concedes Five Years of Inflation Failure

Federal Reserve Bank of Richmond President Tom Barkin delivered a speech titled “Why Hike?” to the CFA Society Baltimore on September 22nd, discussing the Federal Open Market Committee’s (FOMC) recent rate hike of 25 basis points. The move marked the Fed’s first rate increase since mid-2023 and its first policy action of any kind since cutting rates in December. Barkin acknowledged that inflation has now remained above the Fed’s 2 percent target for more than five years, a fact that raises uncomfortable questions about whether the central bank’s tools are working at all. Rather than offering reassurance, his remarks read more like an admission of persistent uncertainty.

The numbers Barkin cited make clear why. July’s headline Personal Consumption Expenditures (PCE) inflation came in at 3.7 percent, with core PCE at 3.3 percent, both well above target. More striking, Barkin noted that over 60 percent of PCE components are rising faster than 3 percent year-over-year, undercutting any suggestion that elevated inflation is confined to a handful of volatile categories. Separately, the labor market continues to show little strain, with unemployment at 4.1 percent in August, the longest stretch in recorded U.S. history at or below 4.5 percent, and job gains rebounding past 160,000 after a weaker July reading.

Barkin also drew a distinction between how different income groups are experiencing this economy. Consumer spending, which accounts for roughly 70 percent of GDP, has stayed resilient even as inflation outpaces income growth, propped up largely by wealth gains among affluent Americans tied to rising asset prices. Lower-income consumers, by contrast, are increasingly stretched, trading down to cheaper goods, skipping insurance, drawing down savings, and taking on more risk simply to keep up. Adding to price pressures, Barkin pointed to nearly $700 billion in AI-related investment announced in a single week earlier this year, a surge he said is straining supply chains further.…