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.

Perhaps most telling were the Richmond Fed’s own survey findings. Business “prices received” growth has averaged 3.5 percent since late 2023, nearly double the pre-pandemic norm, while the Richmond Fed’s CFO Survey shows businesses expect 4.1 percent price growth in 2027, more than double the 2019 average. Barkin conceded that many firms are now testing whether they can raise prices with less consumer pushback than before the pandemic, a dynamic that could keep inflation elevated regardless of what the Fed does with rates. As Peter Schiff put it in a recent podcast episode, “a 25 basis point rate hike is nothing… it is much too little too late to derail the inflation frame.”

Barkin himself offered little certainty about what comes next, stating plainly, “Will additional hikes be required, and how many? We’ll see.” That admission arrived the same day as gold traded around $4,369, a reminder that markets may be drawing their own conclusions about the Fed’s ability to steer inflation back to target.