• Richmond Fed President Thomas Barkin insists 2% inflation is achievable, pushing back against pessimism.
  • His comments come as the Fed weighs another rate hike amid mixed economic signals.
  • Markets remain focused on upcoming inflation data and the October FOMC meeting.

Richmond Federal Reserve President Thomas Barkin on Friday pushed back against the idea that 2% inflation is out of reach, saying the central bank can still achieve its target. “2% inflation is not some unicorn, something we can hit,” Barkin said, according to FinancialJuice, ahead of a scheduled speech at Howard University’s School of Business later that day.

The remark, while brief, underscores the Fed’s commitment to its inflation goal even as price pressures show signs of easing. Barkin’s confidence contrasts with growing market skepticism that the Fed can bring inflation back to target without tipping the economy into recession.

A Delicate Balance

The Fed has been walking a tightrope. In September, it raised rates by a quarter-point—its first hike since mid-2023—and minutes released October 7 showed most policymakers expected another increase by year-end. Barkin himself has argued that inflation risks outweigh employment risks, a stance that could justify further tightening.

Yet recent data offer some encouragement. August personal consumption expenditures (PCE) inflation came in at 3.4% overall and 3.0% excluding food and energy, below expectations but still well above the Fed’s 2% target. That softer reading, along with subsequent policymaker comments, has weakened expectations for an October hike, according to CNBC (VSNT). Some of the improvement, however, stems from changes in how index inputs are calculated, making one report less decisive.

The next key tests come with September CPI and PPI releases on October 14 and 15, just before the Fed’s October 28-29 meeting. J.P. Morgan Wealth Management (JPM) strategists see one more quarter-point hike before year-end as their base case, though they stress the decision remains data-dependent.

The Inflation Fight Continues

Barkin’s “unicorn” comment is the latest in a series of public remarks aimed at shaping expectations. In September, he noted that more than 60% of the PCE index was rising faster than 3% year-over-year, based on a decomposition of 180 categories. That breadth, he argued, means inflation is not merely an energy or tariff shock but a persistent problem.

He also pointed to a resilient labor market—August unemployment at 4.1% and job gains above 160,000—as giving the Fed room to prioritize inflation over employment. But that calculus is complicated by external pressures. Tariffs continue to raise costs for businesses, the Middle East conflict has contributed to energy price pressures, and reduced immigration and baby-boomer retirements have slowed workforce growth. These factors can push prices higher even as the Fed’s tools cannot directly address supply disruptions.

Consumer behavior is another wildcard. Barkin has described lower-income households trading down, buying used goods, and cutting insurance coverage to maintain spending. Wealthier households, meanwhile, have been buoyed by asset-price gains, sustaining demand. That resilience could keep inflation sticky.

Market Implications

The broader market question is whether inflation will force the Fed to keep rates higher for longer. Rising Treasury yields in recent weeks reflect expectations for tighter policy, strong growth, and continued AI-related investment. Barkin has warned that the AI build-out is straining supply chains and generating cost pressures, which could spread beyond technology infrastructure if demand remains strong.

Fed officials are not unanimous. Some favor patience after the softer inflation data, while others warn that prolonged above-target inflation could become harder to reverse. The October 7 minutes reinforced the possibility of another hike but preserved flexibility on timing. As of now, 16 of 18 policymakers submitting forecasts in September expected another increase this year, though it is not a binding commitment.

Barkin’s latest remark adds little new detail on the timing or pace of future moves, but it reaffirms the Fed’s ultimate destination. With key inflation data due next week and the FOMC meeting just around the corner, markets will be watching closely for any shift in tone.

Correction: An earlier version of this article misstated the date of the September FOMC meeting. It was held on September 16-17.