The Federal Reserve should raise interest rates "back to normal levels" after years of keeping them low to provide an extra jolt to the economy, Richmond Fed President Thomas Barkin said Aug. 8.
Barkin is a voter this year on the Federal Open Market Committee, which has raised its benchmark federal funds rate twice this year and has two more hikes penciled in. He said the central bank should continue raising rates amid a strong economy, one that is "starting to feel like we've got some tailwinds rather than headwinds."
It is "difficult to argue that lower-than-normal rates are appropriate" with a 3.9% unemployment rate and inflation around the Fed's 2% goal, Barkin said. He also signaled that keeping rates low could spark an unhealthy inflation increase and that the Fed should not "risk the credibility of our commitment to low and stable inflation."
"That means when the economy calls for moving back to normal levels, as do the conditions I just described, we should follow through," he said in prepared remarks. "Given the strength of the underlying economy and the recent additional fiscal stimulus, the risk of normalization is reduced."
Barkin said recent uncertainty on trade policy is "making people more nervous" today than a few months back, though for now "businesses and consumers seem to be looking through these risks." An Atlanta Fed survey released Aug. 7, for example, found few signs that businesses are halting capital investment plans yet, though researchers warned their concerns could escalate quickly.