Inflation is running at 4.1%, well above the Fed's 2% target. But the Richmond Fed's top official says there are early signs it might ease.
The personal consumption expenditures price index (PCE) is the Fed's favorite measure of inflation. It rose 4.1% over the year ending in May 2026. That was the fastest increase since April 2023.
Richmond Fed President Tom Barkin did not hold back. "Those numbers are too high," he said.
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The Fed's goal is to bring inflation down to 2%. Barkin says it is hard to be confident that will happen without more help from the fed funds rate or the labor market. The fed funds rate is the interest rate banks charge each other overnight. Barkin put it this way: "It's hard to have confidence that you're headed back to 2% without any more influence from the fed funds rate or the labor market or some other feature that creates disinflation the other way."
The war in Iran has pushed up oil and other goods prices. Barkin also pointed to the expansion of AI systems as a factor adding to price pressures. Barkin said, "Businesses, when they set prices, take today's inflation as a factor, and so I think there's some persistence to inflation. "I do worry about that, and that's part of why I think being modestly restrictive is a reasonable place to be"."
Some help is on the way. The oil shock from the war in Iran is starting to fade. Tariffs that raised prices on imported goods are also losing their punch.
Barkin said that should help inflation cool. However, consumer spending stayed robust despite these influences, Barkin noted. Barkin cautioned that, given the economy's reliance on consumer spending, achieving the Fed's 2% inflation target could face additional obstacles.
Barkin said he will watch how the economy develops over the coming months before deciding on the right policy path. He noted early signs that inflation might ease, but he is not ready to change course yet. Other Fed officials have warned that the central bank may need to raise interest rates this year to reverse the recent pickup in inflation.
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