Barr Says Further Fed Rate Hikes Likely Needed As Inflation Remains Too High
By CU Today Staff —
DETROIT—Federal Reserve Gov. Michael Barr said Tuesday further interest-rate increases are likely to be needed to bring inflation back to the Fed’s 2% target, pointing to continued price pressures even as economic growth and the labor market remain solid. Barr delivered the remarks in a speech on economic conditions and monetary policy before the Detroit Economic Club in Detroit.
“In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. We want to support sustainable, durable growth in support of maximum employment, and price stability is crucial to that,” Barr said.
His comments followed the Federal Open Market Committee’s unanimous decision earlier this month to raise short-term interest rates. Barr said risks to achieving the Fed’s inflation target have increased while risks to the labor market have receded.
Barr said inflation has remained above the FOMC’s 2% target for five-and-a-half years and that recent pressures from high energy prices and the artificial-intelligence investment boom have knocked the Fed off course in returning inflation to target.
“And I don't yet see a clear trend toward a timely return to 2%,” Barr said.
At the same time, he said job creation has averaged about 80,000 per month this year and the 4.1% unemployment rate is close to many estimates of maximum sustainable employment.
Barr also devoted much of the speech to AI, saying the technology could eventually boost productivity and living standards but could create labor-market disruptions along the way.
“That said, we should be prepared for the possibility that there might be serious short-term disruptions in the labor market that need to be managed effectively to ensure the benefits of AI are realized over the long term,” Barr said.
He added that a sustained AI-driven productivity increase could ultimately push the economy’s equilibrium interest rate higher, although “it is too early to know if these dynamics are in play right now.”
Originally reported by CU Today.