Fed should move policy ‘with care’ as it responds to inflation, Barkin says

By Howard Schneider

GREER, South Carolina, Nov 9 (Reuters) – The US central bank should move its monetary policy “with care” as it maps a response to inflation that remains its greatest risk, Richmond Federal Reserve President Tom Barkin said on Monday, adding he had no base case for what should be done at the coming December meeting.

“I don’t have a base case…We’ll get inflation. We’ll get another jobs report…Let’s see where the economy goes,” Barkin told journalists after a local chamber of commerce event. “I am not going to predict…We are going to get to the meeting and figure it out.”

The days since last week’s midterm elections have been volatile for US stock and bond markets as investors processed both a coming change in control of the US Congress and an apparent backlash in local elections against the rapid buildout of data centers by artificial intelligence firms.

AI investment is a main prop of US economic growth right now but is also considered by many central bank policymakers as adding to inflation that remains well above the Fed’s 2% target.

Investors currently expect the Fed to raise rates at the December 8-9 meeting as a way to put more downward pressure on the pace of price increases.

As it stands, Barkin said in remarks to the Greater Greer Chamber of Commerce in South Carolina, businesses continue to face rising costs and say they are planning to try to pass them along.

After nearly six years in which inflation has been above the Fed’s 2% target, “the risk lies on the inflation side of our dual mandate,” Barkin said.

“With demand healthy and inflation stubbornly elevated, the appropriate direction of monetary policy is relatively straightforward,” said Barkin, who will become a voting member of the central bank’s policy-setting committee in 2027. 

But “it is wise to move policy with care,” Barkin said, given risks that could hit the labor market and the Fed’s maximum employment goal.

The risks around AI, Barkin said, were “particularly consequential” in that regard, a fact highlighted by large swings in technology stocks and the probabilities attached to Fed rate increases in the days following the elections.

If the new technology “underdelivers,” Barkin said, it could curb business investment, stock prices and consumer spending, undercutting a key source of growth and possibly boosting unemployment.

In addition, “AI could overdeliver and displace more workers than expected,” he said.

(Reporting by Howard Schneider; Editing by Paul Simao and Andrea Ricci )