Fed's Barkin: US Economy Firming, Inflation Beyond Energy and Tariffs

US economic conditions "are, if anything, firming," and the Federal Reserve's battle against inflation is far from over, Richmond Fed President Tom Barkin said on Tuesday in Baltimore.

Speaking to the CFA Society Baltimore, Barkin said continued consumer spending and strength extending well beyond the boom in artificial intelligence data centers are keeping the central bank's focus squarely on prices.

"The risks to inflation outweigh the risks to maximum employment. That's why we raised rates," Barkin said in comments prepared for delivery, referring to last week's quarter-percentage-point hike. The move, he added, "will help" restore inflation to the Fed's 2% target.

The Fed raised its policy interest rate to the 3.75%-4.00% range at its meeting last week. Investors are anticipating more increases to come.

"Will additional hikes be required, and how many? We'll see," said Barkin, who is not a voting member of the rate-setting Federal Open Market Committee this year. His remarks, first reported by Reuters' Howard Schneider on September 22, signal that the debate inside the Fed is shifting from how fast to cut inflation toward how much more tightening the economy can absorb.

Barkin's comments align with a broader shift among Fed officials. A growing number of policymakers now argue that inflation is being driven increasingly by strong demand across the economy — not merely by energy costs, tariffs and other supply-side shocks that might have been expected to fade on their own.

The Richmond Fed president pushed back directly on that more optimistic framing. Even those "'passing' shocks aren't proving to be short-lived, or one-off events," he said. Instead, they are producing more persistent price pressures than policymakers first expected.

"It is tempting to try to blame high inflation on a handful of categories with particularly high exposure to the Middle East conflict or to tariffs," Barkin said. The data tell a different story: much of the Personal Consumption Expenditures Price Index is increasing at greater than a 3% annual rate.

That breadth matters. When price increases are confined to a few shock-exposed categories, the Fed can wait for supply conditions to normalize. When they spread across the consumption basket, the calculus changes — and rate hikes become the primary tool.

Barkin also offered a granular read of the economy from his district's business contacts. "I am hearing momentum outside of data centers, too. The defense sector is hot. Manufacturing contacts are starting to sound more upbeat. Bankers tell us pipelines are healthy," he said.

That anecdotal strength complicates the case for an early pivot on rates. A firming economy with broad-based inflation above 3% leaves the Fed little room to declare victory, and Barkin's openness to further hikes suggests the tightening cycle that produced last week's move to 3.75%-4.00% may have further to run.