Fed’s Barkin: Interest rates need to get ‘tight’

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Richmond Federal Reserve Chairman Thomas Barkin said on Friday he wanted to raise interest rates further to keep inflation under control and would watch U.S. economic data to decide the size of a hike. rates to support at the next Fed meeting in September.

“I’d like to see a period of sustained inflation under control, and until we do, I think we’ll just have to move rates into restrictive territory,” Barkin told CNBC.

While this week’s data showing inflation did not pick up in July was “welcome,” Barkin said, he would like to see inflation hit the Fed’s 2% target for “a while.” before stopping the rate hikes.

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“There’s still more to come to get into restrictive territory,” he said.

The Fed has raised its key rate sharply in recent months, notably with two consecutive increases of 75 basis points in June and July which took the Fed’s target rate range to 2.25%-2.5%. Investors currently expect the Fed to downgrade to a half-point hike at its meeting next month, although futures market bets reflect around a 45% chance of a third straight move of 75 basis points.

Noting there will be more inflation and jobs data by then, Barkin said he’ll “make up his mind when we get closer” and wants to see “real” borrowing costs – c ie the cost of money after subtracting measures of inflation and inflation expectations — move above zero.

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A University of Michigan survey released on Friday showed that one-year inflation expectations fell this month to a six-month low of 5.0% from 5.2%, while the outlook for Five-year inflation survey rose slightly to 3.0% from 2.9%.

“I think we’re on the verge of moving real rates into positive territory across the curve, we need to keep it there,” Barkin said. “And we have to follow through on some of the expectations that exist in terms of the tariff trajectory in order to maintain it.”

So far, the economy is resilient to Fed rate hikes and is fundamentally sound, he said, adding that the jobless rate will likely rise as monetary policy tightens. (Reporting by Ann Saphir; Editing by Mark Porter and Toby Chopra)



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