Fed’s Barkin Admits Inflation Fight Isn’t Over, Warns of “Patch and Pray” Economy

Richmond Fed President Tom Barkin delivered a speech titled “The Rooms Driving the Economy” on November 9th at the Greater Greer Chamber of Commerce in Greer, South Carolina, offering an unusually candid account of an economy that looks healthy on paper but strained underneath. Barkin acknowledged that inflation has remained above the Federal Reserve’s 2% target for more than five years, a point that undercuts any suggestion the central bank has price increases under control. September data showed headline Personal Consumption Expenditures (PCE) inflation at 3.6% and core PCE at 3.1%, both still well above target. The speech came as gold traded at $4,140 per ounce, continuing a pattern of strength tied to inflation concerns and uncertainty over where monetary policy goes next.

Barkin’s remarks pointed to businesses that are now actively trying to pass along cost increases they had previously absorbed, citing pressures in health insurance, gas and diesel, trucking, ocean freight, business travel, memory chips, interest rates, and tariffs. That admission sits awkwardly alongside second-quarter S&P 500 earnings, where median growth hit 15% and aggregate growth reached 31%, raising the question of how price stability squares with corporate profit growth of that size. Business investment also rose 12.7% in the third quarter, led by artificial intelligence and defense spending, though Barkin noted bankers are seeing healthy loan demand beyond just the AI buildout.

The labor market, by conventional measures, looks strong. Initial unemployment claims sit at their lowest levels in more than 55 years, and the unemployment rate stood at 4.1% in October, extending the longest streak on record of unemployment at or below 4.5%. Yet Barkin pointed out that the University of Michigan Index of Consumer Sentiment recorded its five lowest readings ever this year, a gap between official statistics and how people say they actually feel about their finances. Nominal consumption excluding food and energy grew at a 6.9% annualized rate over the past six months even as real wages flattened, which points to households spending beyond what their paychecks support.

Barkin described how lower-income consumers are adapting: trading down to private labels, switching from beef to cheaper proteins, relying on food banks, buying used goods, dropping insurance coverage, and drawing down savings. He quoted a roofer who described the shift from replacements to repairs as “patch and pray,” a phrase Barkin used to capture how consumers may be borrowing against their own future stability. Meanwhile, more than 40% of upper-income consumers say they will keep spending as usual even on items with steep price increases, more than double the share of lower-income consumers who say the same, pointing to a widening gap between asset holders and wage earners.

Barkin stated plainly that “should the economy remain on its current path, the risk lies on the inflation side of our dual mandate,” while adding that “with demand healthy and inflation stubbornly elevated, the appropriate direction of monetary policy is relatively straightforward” but that “risks to the demand outlook remain easy to envision” and policy should move “with care.” He also flagged the possibility that an AI-driven investment boom could falter in either direction, either underdelivering and dragging down asset prices or overdelivering and displacing workers faster than the economy can absorb. Taken together, the picture Barkin described is one where inflation has not been resolved, consumers are increasingly stretched, and the Fed’s next steps remain far from settled.