'Fed Not Waiting Around For Things To Settle On Their Own:' Barkin Believes Worst Of Inflation Surge Over

Richmond Fed President Thomas Barkin believes the worst of the inflation surge may have passed but noted the central bank’s fight to rein in inflation "may lead to a downturn" as the interest rate hikes are "challenged" by still-high consumer savings, still-tight labor markets and ongoing supply problems, reported Reuters.

Barkin said his personal hypothesis is that they are on the back end and not on the front end. "Commodity prices seem to be cooling, supply chains seem to be easing up, excess spending is being spent down and the Fed is raising rates and doing what we need to do about it,” Barkin added, according to the report.

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Market participants are keenly awaiting the consumer price inflation data set to be released on Thursday. The SPDR S&P 500 ETF Trust SPY ended Wednesday’s session 2.06% lower while the Vanguard Total Bond Market Index Fund ETF BND gained 0.14%.

Getting To Normal: The Richmond Fed President, however, said it remains unclear how "malleable" and quick-to-fall inflation will prove to be or how much higher the central bank’s policy rates will need to rise.

"Our tools to quiet demand and return inflation to our 2% target operate with a lag and have been challenged by the artificial elements of today’s environment," he said.

As a result, bringing supply and demand back into alignment may require still more from us, creating risk to the broader economy, Barkin explained while adding that getting to normal may lead to a downturn.

The central bank official also pointed out that the Fed is not waiting around for things to settle on their own. “If we back off for fear of a downturn, inflation comes back even stronger and requires even more restraint," Barkin asserted.

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