Barkin Urges Fed Caution as Inflation Persists and Demand Remains Strong

Key Facts

Thomas Barkin, president of the Federal Reserve Bank of Richmond, urged caution in monetary policy, saying in a speech delivered on November 9 that demand was strong and inflation remained stubbornly elevated. He added that the appropriate direction for monetary policy was "relatively clear," but that risks to the demand outlook were "easy to imagine," making patience appropriate. Barkin said risks to the Fed’s dual mandate tilted toward inflation, after inflation had remained above the central bank’s 2% target for nearly six years. His comments come as labor-market indicators diverge, with job gains and stability in the headline unemployment rate on one hand, and an increase in a broader measure of unemployment on the other. The Fed kept its target rate range at 3.75% to 4% in its October 28 decision, amid continued elevated inflation.

The Bureau of Labor Statistics said nonfarm payrolls rose by 165,000 in October, compared with an average monthly gain of 48,000 over the previous twelve months. Gains were spread across business and professional services, health care, transportation and warehousing. The unemployment rate held at 4.1% and the labor force participation rate at 61.9%, with little change in either during the month. By contrast, the U-6 measure, which includes underemployment as well as unemployment, rose 0.3 percentage points to 7.9%. Revisions showed that the combined August and September job count was 84,000 higher than previously estimated.

Wage data showed continued monthly growth: average hourly earnings for private-sector, nonfarm employees rose 14 cents, or 0.4%, to $38.00 in October. On an annual basis, average hourly earnings increased 3.1% over the twelve months ended in October. In his speech, Barkin said initial jobless claims were at their lowest levels in more than 55 years, while companies were slowing hiring amid uncertainty and the potential impact of artificial intelligence. He described demand as strong but cautioned that risks to the outlook remained. He also said the AI boom could fall short of expectations, weighing on corporate investment, stock prices and consumer spending, and potentially raising unemployment; if the boom exceeded expectations, it could displace more workers than expected.

Barkin pointed to continued spending and investment as signs of resilient demand. Nominal spending excluding food and energy grew at a calculated annual rate of 6.9% during the six months before the speech, and he said more than 40% of higher-income consumers expected to continue spending as usual on goods seeing large price increases over the coming year. Business investment also rose 12.7% in the third quarter, supported by AI and defense investment, while loan demand remained strong beyond the AI boom. He said median earnings growth for S&P 500 companies was 15% in the second quarter, while overall earnings growth reached 31%, and third-quarter results came in at a similar level. By contrast, the University of Michigan’s consumer sentiment index recorded its five lowest monthly readings ever during the year, and September personal consumption expenditures inflation was 3.6% overall and 3.1% excluding food and energy.

On the policy backdrop, Barkin said in an earlier speech in February that the Fed had cut interest rates by 175 basis points over the preceding year and a half and was moving them back toward neutral levels as inflation eased and the labor market was supported. The October decision was approved by a 10-2 vote, with the two dissenting members preferring to raise the target range by a quarter percentage point. Reuters reported that Barkin will become a voting member of the Federal Open Market Committee in 2027. Ahead of the committee’s next meeting, scheduled for December 8 and 9, investors were expecting a rate hike, according to Reuters. October consumer price index data are due on November 10 at 8:30 a.m. Eastern time, while the next jobs report is scheduled for December 4 at 8:30 a.m. Eastern time; the Fed will hold its December meeting on the 8th and 9th, with its chair’s news conference on December 9.