The Zhitong Finance App learned that on Thursday local time, Richmond Federal Reserve Bank Governor Thomas Barkin said that in order to achieve the set 2% inflation target, it is necessary for the Federal Reserve to maintain high borrowing costs for a longer period of time. He stressed that the rise in service prices is the main reason why inflation is currently high.

In an interview with the media, Barkin pointed out that in order for inflation to fall back to the target level, demand in the US needs to slow down moderately. At the same time, he mentioned that with the gradual easing of supply chain problems, commodity inflation has shown a significant downward trend.

“To achieve an inflation rate of 2% in a sustainable and steady manner, I think we need more time,” Barkin said in a speech on Thursday. “There is still uncertainty about price movements in the service sector, which will take time to stabilize. Nevertheless, I am convinced that we are moving in the right direction.”

The Federal Reserve has not adjusted interest rates since the July meeting, and inflation data that exceeded expectations also prevented officials from lowering interest rates from their high level since 2001. Market participants currently generally expect that the Fed will cut interest rates 6 times this year, while the current forecast is close to 2 interest rate cuts. This is expected to happen in early 2024.

According to data released by the US Bureau of Labor Statistics on Wednesday, the US core consumer price index for April (excluding food and energy costs) rose 0.3% compared to March. This is the first time in six months that it has shown signs of cooling. Previously, the core CPI data for three consecutive months all exceeded expectations, raising market concerns that inflation may be deep-seated.

Barkin also mentioned retail sales data released on Wednesday, which showed that retail sales growth had stagnated over the past month. He analyzed that this indicates “consumer spending is good, but there is no overheating,” and further stated, “This is just one of many economic indicators; it helps us understand the current intensity of demand.”

It is worth mentioning that several Federal Reserve officials have recently expressed the view that the Federal Reserve will need to keep interest rates unchanged for “quite some time,” including Minneapolis Federal Reserve Chairman Kashkari, Kansas City Federal Reserve Bank Governor Jeffrey Schmid, and Cleveland Federal Reserve Chairman Mester.

Kashkari said this Wednesday that he expects the Fed's policymakers to keep interest rates unchanged for “quite some time” until they have confidence in the underlying trend in inflation.

Kashkari said, “In my opinion, the biggest uncertainty is how much downward pressure monetary policy is putting on the economy. It's an unknown, we can't be sure — it tells me we might need to stay here a little longer until we figure out the basic trend of inflation and make any conclusions.”

Schmid also recently said that since policymakers are looking for evidence that price pressure is easing, interest rates may remain at a high level “for some time.” Schmid believes that the current monetary policy is “in the right position” and predicts that inflation will gradually fall back to the 2% target set by the Federal Reserve.

Schmid also mentioned that since fiscal deficits may persist, interest rates may remain high for a period of time. He expressed uncertainty about whether the low interest rate environment can return, suggesting that the current high interest rates may not simply fall back to pre-pandemic levels.

Meanwhile, Cleveland Federal Reserve Chairman Meister also said that it is appropriate for the Federal Reserve to keep interest rates unchanged while awaiting evidence of further easing price pressure, and believes that it is still too early to conclude that the Fed's process has stalled or that inflation will be reversed.

Meester added that she is in no hurry to consider raising interest rates because rising short-term interest rates may bring new instability to the financial system.

In an interview, Meester said there are clear signs that the physical aspects of the economy are slowing down, which will help restore balance to the economy. This indicates that long-term indicators of inflation expectations appear to be “fairly well anchored” at a level consistent with the Federal Reserve's 2% target.

As can be seen from this, Federal Reserve officials generally believe that in order to achieve the inflation target and ensure economic stability, it is necessary to maintain a high interest rate level at present, and then consider policy adjustments after they are convinced that inflation is effectively controlled.