Fed Governor Michael Barr: further rate hikes may be needed to beat inflation

U.S. Federal Reserve Governor Michael Barr said on Tuesday that the central bank may need further interest-rate hikes to beat inflation, as the Fed, as Reuters reports, has been “knocked off course” on the path toward its 2 percent target because of high energy prices and booming investment in artificial intelligence.

“I don’t yet see a clear trend of a timely return to 2%,” Barr said in a speech prepared for the Detroit Economic Club, adding that inflation remains far too high and risks have increased. He noted that the labor market remains strong, but that risks to it are receding.

“Under my baseline scenario, further policy adjustments will likely be needed to ensure inflation falls to target in a timely manner,” the governor stressed, according to Reuters.

Financial markets strongly expect the Fed to follow September’s 0.25-point hike — which took the benchmark rate to 3.75%–4.00%, the first increase in three years — with another hike at its October 27–28 meeting.

Barr explained that the conflict in the Middle East has pushed up global oil prices, while the development of artificial intelligence has increased demand for technology goods, raising prices for businesses and consumers. He said he is optimistic that in the long term AI will raise productivity, but warned that there could be “serious short-term disruption in the labor market” that needs to be managed carefully.

“What is clear now is that inflation is far too high,” he concluded.