Federal Reserve Bank of Richmond President Tom Barkin said the FOMC's September rate hike was appropriate because little had changed between the July and September meetings, with unemployment low, growth continuing, and inflation more than a percentage point above the Fed's 2% goal. In a speech in Baltimore on Tuesday, Barkin pushed back on the argument that recent supply shocks will fade, noting that new tariffs are still cropping up, the conflict in the Middle East is ongoing, and the AI build-out continues to stress supply chains. He said business contacts report less resistance to price increases than before the pandemic, with more firms taking the chance of raising prices, adding that the net effect is more inflationary pressure. Barkin outlined two paths ahead: inflation could come down quickly on its own if consumers reach their limit, the investment boom slows, markets correct, or employment falters, but if the temporary shocks drag on, inflation could prove more stubborn and likely require further rate hikes. Traders are leaning toward another 25-basis-point hike at the Oct. 27-28 meeting, with a 55.4% probability according to the CME FedWatch tool and 51% on prediction market platform Kalshi.
Barkin defends the September rate hike as appropriate and signals further hikes may be needed, pushing the policy rate higher.
Hawkish Fed commentary and rising odds of another 25bp hike at the Oct. 27-28 meeting lift the 10-year Treasury yield.
