(Reuters) – The U.S. Federal Reserve must lift interest rates to a level that restrains economic activity and keep them there until policymakers are “convinced” that inflation is subsiding, Richmond Fed President Thomas Barkin told the Financial Times on Tuesday.
In order to restore price stability, the U.S. central bank will need to tighten its monetary policy further so that real interest rates, which are adjusted for inflation, sit above zero, Barkin said in an interview with the paper.
“You do have to move to a level where inflation expectations come down in order to have enough restriction on the economy to bring inflation down,” the FT quoted Barkin as saying.
“The destination is real rates in positive territory and my intent would be to maintain them there until such time as we really are convinced that we put inflation to bed,” Barkin added.
Barkin’s comments come ahead of the Fed’s meeting this month to decide whether it will implement a third 75 basis point hike or slow down the pace of tightening with a 50 basis point rise.
He told the FT that he has not decided on the size of the next rate increase he will back, but highlighted the resilience of the U.S. economy.
“The economy is still moving forward [and] its momentum hasn’t been halted,” Barkin said, noting that the labor market is still “very tight”.
“I have a bias in general towards moving more quickly, rather than more slowly, as long as you don’t inadvertently break something along the way,” Barkin told the paper.
Last month, Barkin said he wants to raise interest rates further to bring inflation under control, and will watch U.S. economic data to decide how big a rate hike to support at the Fed’s next meeting in September.
Some Fed officials have said that the U.S. central bank’s benchmark overnight interest rate would not just keep rising but remain at a high level until inflation returned to the Fed’s 2% target.
Barkin is not a voting member at the policy-setting Federal Open Market Committee (FOMC) this year.
(Reporting by Juby Babu in Bengaluru; Editing by Saumyadeb Chakrabarty)
