Barkin signals gradual Fed rate hikes ahead

Richmond Federal Reserve President Thomas Barkin said the central bank will likely need to raise interest rates further, while stressing that the size and timing of additional moves remain uncertain. Speaking in a CNBC interview at the Richmond Fed’s 2026 CFO Summit, he described the policy path as “pretty straightforward” in light of current economic conditions, but emphasized that the key issue is the pace of future tightening.

Barkin said a gradual approach to rate increases “makes sense” given uncertainty and the information policymakers will receive over time. He indicated that monetary policy will need to adjust as data evolve, rather than move in large or rapid steps.

Barkin’s comments came a little more than a week after the Federal Open Market Committee decided to keep its benchmark overnight borrowing rate in a target range between 3.75% and 4%. That decision followed a quarter-percentage-point increase approved in September, when officials largely agreed that another hike was likely before the end of 2026.

He said he views current policy as close to a neutral level that neither restricts nor promotes economic growth, describing it as "somewhere around neutral." While he is not presently a voting member of the rate-setting committee, he is scheduled to become one in 2027.

Barkin highlighted inflation as the central bank’s “most important risk” at the moment. He noted that unemployment is near record lows while inflation remains too high, a combination that he said makes the direction of policy clear even as the appropriate pace of action is debated.

He expressed hope that the September quarter-point increase, along with any future decisions, will have an impact on price pressures. At the same time, he indicated that he does not see inflation accelerating, but also does not see it falling at present.

Barkin pointed to artificial intelligence as one current source of price pressures, suggesting that its near-term influence is contributing to inflation. He also said AI could eventually spur production and, over time, help ease inflation by raising supply capacity.

Financial markets were pricing in a better than 80% probability of another rate hike in December and one additional move in 2027, based on futures market measures. These expectations align with Barkin’s indication that further tightening may be needed, but at a measured and gradual pace.

In discussing the broader economy, Barkin said businesses remain cautious about hiring but are still not cutting staff. He noted that strong earnings are encouraging companies to continue investing and to hold onto workers despite uncertainty about the outlook.