By Greg Robb
All signs point to lower U.S. inflation in coming months, Richmond Fed President Thomas Barkin said Friday.
“Inflation should come down a bit. I don’t expect it to be immediate. I don’t expect it to be predictable,” Barkin said in a luncheon speech to the Prince William Chamber of Commerce in suburban Washington D.C..
The Commerce Department reported earlier Friday that headline inflation softened in August but core inflation, which excludes volatile food and energy prices, picked up .
Barkin said that economists have different theories about inflation but all are pointing to lower inflation.
He said that business leaders don’t think the pricing power they’ve had over the past two years will last.
The Fed has been raising its benchmark interest rate at an historic pace – some 300 basis points since March. In addition, the Fed is penciling in another 150 basis points over the next six months.
Barkin said he didn’t have regrets with moving quickly to raise interest rates because inflation has stayed stubbornly high this year.
“We have got to get this done,” Barkin said.
“And at this point, the risk of inflation festering still feels to me like a bigger risk than the risk of inflation coming down on its own and us having oversteered,” Barkin said.
In comments to reporters following his speech, Barkin said he hadn’t seen anything in financial markets that would cause him to slow down the Fed’s steady shrinkage of its balance sheet.
The Fed is now letting $95 billion of Treasurys and mortgage-backed securities roll off its balance sheet as they mature rather than reinvesting the proceeds.
The market for Treasurys and MBS “is not the most liquid they have ever been , but those markets still appear to be functioning fine,” Barkin said.
The Richmond Fed president won’t be a voting member of the Fed’s interest-rate committee until 2024.
Barkin said the U.S. consumer spending data released earlier Friday showed that consumers continue to spend.
“It is not robust, it’s not falling off the table. It is bouncing around in an ok place,” Barkin said.
Inflation-adjusted spending rose 0.1% in August after falling a revised 0.1% in the prior month.
U.S. stocks /zigman2/quotes/210598065/realtime DJIA +0.10% /zigman2/quotes/210599714/realtime SPX -0.12% were lower Friday but have been weak since the Fed’s rate hike last week. The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.65% has eased a bit after getting close to 4% earlier this week.