Comments from the Fed’s Barkin cross the wires:
- Direction of travel is “straightforward” for the Fed, the question is pace.
- A gradual approach is a good way to go right now.
- A lot of cost pressures are hitting American businesses.
- In the context of years of elevated inflation it is easier for businesses to argue they need to raise prices.
- Resilience of consumer spending has been a surprise given relatively flat incomes.
- The AI investment surge has pressured supply chains, and that is inflationary.
- AI investment is leading to demand side inflation, which is the kind of thing the Fed can lean against.
- Businesses are saying that there cost pressures are broad-based.
- Businesses are laying plans to pass those costs on to their customers.
- Demand remains a solid with only weakness in nonprofits and in the housing sector
Analysis: Barkin’s comments carry a hawkish bias, but with a preference for moving gradually. The key distinction is his view that AI investment is generating demand that the Fed can lean against. Strong investment spending and pressure on supply chains could keep inflation elevated, even as relatively flat incomes would normally be expected to restrain consumers.
For policy expectations, the question is how quickly the Fed needs to respond. Barkin favors a measured approach, but resilient spending and businesses finding it easier to pass along higher costs suggest continued concern about inflation persistence. His remarks do not specify the size or timing of the next move.
This article was written by Greg Michalowski at investinglive.com.