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May 28, 2022

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Fed’s Barkin says ‘Volcker-like recession’ unnecessary to bring inflation down

The Federal Reserve doesn’t need to engineer a “Volcker-style recession” to get inflation under control, said Richmond Fed President Tom Barkin on Tuesday.

With the Fed’s benchmark policy rate at 83 basis points, “we are still far from the level of interest rates that constrains the economy,” Barkin said.

The Fed will get rates up to neutral — around 2%-3% — and then determine whether rates need to go higher “to put the brakes on the economy or not,” Barkin said, in a speech to the Cecil County Chamber of Commerce in Maryland.

The 1981-1982 recession resulting from Fed Chairman Paul Volcker’s policies, was the worst economic downturn since the Great Depression, only surpassed by the 2008 financial crisis. The unemployment rate hit nearly 11%.

Barkin said that inflation will come down in two ways. First, a number of pandemic-era pressures will eventually settle, he said.

“Chips will finally get into cars,” Barkin noted.

At the same time, interest rates will impact demand and expectations, he added.

“All of this will take a little time, but make no mistake, we are on the case,” Barkin said.

Earlier Tuesday, New York Fed President John Williams said the Fed can slow inflation this year while economic growth continues.

Stocks were set to open higher Tuesday after three days of sharp selloff. The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.964%
rose to 3.082%.