Fed Governor Michael Barr indicated that a September rate increase remains possible, emphasizing that the U.S. economy continues to show strength while inflation remains elevated. Speaking at the Second‑Chance Lending Forum in Washington, D.C., he noted that “the labor market is stable, with relatively low unemployment” and “the economy has been growing solidly,” supported partly by AI‑related investment. He added that consumer spending has stayed “largely resilient,” giving the Fed latitude to concentrate on inflation rather than signs of weakening growth.
Inflation remains Barr’s primary worry. He said “inflation remains too high—and has been for over five years,” pointing out that disinflation stalled in 2025 due to tariffs, Middle‑East tensions and rapid AI investment. Barr also stressed that “core non‑housing services inflation remains elevated” and cautioned that prolonged above‑target inflation could allow broader price pressures to become entrenched.
Barr left the September decision explicitly contingent on incoming data. If inflation trends give him confidence that price growth is moderating toward the 2% target, he said the Fed could “take a bit more time to assess our policy stance.” Conversely, his hawkish threshold was clear: “If inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.” This positions Barr in a data‑dependent but tightening‑ready camp ahead of the September FOMC meeting.
Key Takeaways
- Fed Governor Michael Barr said the U.S. economy is “growing solidly,” the labor market is “stable, with relatively low unemployment,” and consumer spending has remained largely resilient.
- Barr’s main concern is inflation, which he said “remains too high—and has been for over five years.”
- He highlighted elevated “core non‑housing services inflation” and warned that prolonged above‑target inflation risks allowing broader price pressures to take hold.
- Barr kept the September decision open: further moderation toward 2% would justify taking “a bit more time” to assess policy.
- His hawkish condition was explicit: “If inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”
- Overall, the message is data‑dependent but tightening‑ready: economic resilience gives the Fed room to act if inflation progress disappoints.
Full speech of Fed’s Barr here.
