Inflationary pressures from tariffs and the Middle East conflict may persist for a while before their impact fades, Richmond Fed President Tom Barkin said Tuesday.
Prices have been above the Fed's 2% goal for more than five years now, making inflation as "our troublemaker," Barkin said in remarks for an event in Baltimore.
"New tariffs are still cropping up. The conflict in the Middle East is ongoing. And the (artificial intelligence) build-out continues to stress those supply chains," Barkin said. "These may pass in time, but I do expect it will take time."
Last month, Canada announced retaliatory tariffs on roughly $20 billion worth of US goods, matching Washington's move "dollar for dollar" as trade tensions between the two nations escalated. Earlier, US President Donald Trump threatened to boost tariffs on Canadian cars, trucks and steel to 50% starting next year.
The US-Iran war is into its seventh month, with no prospects of near-term talks on a peace deal.
Last week's Fed decision to increase interest rates should help cool inflation, according to Barkin, who is an alternate member of the Federal Open Market Committee this year. Alternate members get to vote on policy decisions if a scheduled voter is not available.
"Will additional hikes be required, and how many? We'll see," he said.
The latest Fed "dot plot" showed a hawkish tilt, with 16 of 18 officials anticipating additional tightening this year following the most recent 25-basis-point rate hike.
"There was an argument that inflation would return to target on its own, without any additional help from the Fed," Barkin said. "The idea was that as inflationary shocks passed, so would high inflation. One problem with that argument, of course, is that the 'passing' shocks aren't proving to be short-lived, or one-off events."
On Monday, Chicago Fed President Austan Goolsbee -- another FOMC alternate member -- said that policymakers can no longer afford to look through supply shocks that have become a regular feature of the economy.
The Fed's next interest rate increase could come as early as October as higher oil prices threaten to push inflation farther away from the 2% goal, Oxford Economics said in a report e-mailed Tuesday.
Markets are currently pricing in a 55% probability that the FOMC will hike again by 25 basis points in October, with the remaining odds in favor of a pause, according to the CME FedWatch tool.
