Richmond Federal Reserve President Tom Barkin said Thursday that recent inflation persistence and stronger employment data warrant a reassessment of the Federal Reserve's risk profile, noting the potential for the U.S.-Israel war with Iran to push consumer prices higher.
Speaking on Bloomberg Television, Barkin recounted the rationale that guided the Fed's rate reductions last year - namely, the view that labor market risks were tilted to the upside while inflation risks appeared to be easing. He added that recent data over the past couple of months suggest that balance has shifted in the opposite direction.
He highlighted the Personal Consumption Expenditures price index as a focal point for policymakers. Barkin noted that the PCE gauge is expected to remain about a percentage point above the Fed's 2% target and warned that a couple of months of relatively higher inflation complicates any conclusion that the battle against inflation is finished.
"With the PCE numbers that we're expecting next week, you've got a couple months of relatively high inflation. That certainly puts pause to any conclusion that we're done fighting this," Barkin said.
Barkin also addressed how the U.S.-Israel war with Iran could factor into monetary policy decisions. He observed that rising gas prices are inherently inflationary and that officials will need to judge whether price moves stemming from geopolitical developments are short-lived shocks to be looked through or more persistent influences that warrant a policy response.
"Gas prices, obviously, if they're up, that is inflationary," Barkin said. "Textbook monetary policy would be you look through a short-term shock, but you don't look through a long-term shock, and I think that's a lot of the assessment people are going to have to make."
Federal Reserve officials are scheduled to meet March 17-18. Ahead of that gathering, they have signaled they will likely keep policy rates unchanged for a second consecutive meeting while seeking further progress on inflation. Policymakers have also embraced the view that the labor market is stabilizing, which has made them cautious about moving forward with additional rate cuts after three reductions at the end of 2025.
Barkin's remarks underline the balancing act facing the Fed as it weighs incoming inflation and jobs data alongside external shocks when deciding whether the current pause in rate moves should continue or be reconsidered.