Fed Raises Rates as Inflation Risks Outweigh Employment Concerns, Says Richmond President

The Federal Reserve raised its policy rate last week, marking the first increase since 2023, as officials seek to curb persistent inflation. Richmond Federal Reserve Bank President Tom Barkin told the CFA Society of Baltimore that the "risks to inflation outweigh the risks to maximum employment," explaining the decision to tighten monetary policy.

Barkin, a non-voting member of the Federal Open Market Committee this year, said the central bank remains committed to bringing inflation back to its 2% target and that the recent hike should help achieve that goal. He noted that inflation has stayed above target for five years and added that future moves will depend on whether price pressures ease as recent shocks fade.

"I'm open to the possibility that inflation could come back down in short order," Barkin said, citing potential reversals of recent shocks and consumer spending limits. He also warned that the conflicts in Iran and the rapid expansion of artificial-intelligence-related investment are not short-lived events and could keep price pressures elevated.

Market participants see at least one more 25-basis-point hike before year-end, with a roughly 48% probability of a move to a 4.00%-4.25% range after the October meeting. Federal Reserve officials released projections consistent with an additional hike, while Chair Kevin Warsh declined to provide forward guidance.

Economist Gregory Daco of EY-Parthenon said Barkin’s remarks reflect a broader shift among policymakers toward a more restrictive stance after patience on core inflation ran out. Daco cautioned that further tightening could strain interest-sensitive sectors without significantly dampening the AI-driven investment surge, and noted a lack of clear communication on how tighter policy would correct the inflation overshoot.