Thomas I. Barkin, President of the Federal Reserve Bank of Richmond, who is not a voting member of the Federal Open Market Committee (FOMC) in 2026, called inflation the most important risk for the Fed right now.

He does not anticipate it will accelerate, but he does not see it falling at this point either. Barkin traced the pressure to the cost increases of the past 18 months, starting with tariffs, which have spread broadly and which firms feel they have to pass along.

On policy, he placed the current stance somewhere around neutral and called the path straightforward. The question now is pace, and a gradual one “makes sense.”

Turning to AI, Barkin said the buildout has definitely had an inflationary impact in the near term, and he called AI a big part of current strong demand. He drew a line on productivity, though. He does not think AI is currently driving it as much as adaptation to the labor shortages that began during the pandemic.

The wider economy looks solid to him: demand is holding up, though some sectors don’t feel it, and strong earnings are encouraging firms to invest and hold onto workers. Businesses remain cautious about hiring but are not yet firing.

He called the budget deficit “sizeable” and said fiscal policy over the past few years has been a tailwind for the economy. Rounding out his remarks, he called credit dynamics in the banking sector “reassuring” at this point and played down the change in the number of policy-setting meetings, noting that it brings a better flow of data into each session.

Inflation

• “Inflation is the most important risk for the Fed right now.”

• “Do not anticipate inflation will accelerate, but also don’t see it falling at this point.”

• “The set of cost pressures of the past 18 months, starting with tariffs, are broad based and firms feel they have to pass them along.”

Monetary Policy

• “Policy right now is somewhere around neutral.”

• “Path on policy is straightforward; the issue now is pace and gradual ‘makes sense.’”

AI & Productivity

• “AI buildout has definitely had an inflationary impact in the near term.”

• “AI is a big part of current strong demand.”

• “Do not think AI is what is currently driving productivity as much as adaptation to the labor shortages that began during the pandemic.”

• “Interest rates are probably not the top thing that would curb AI, but they will have some impact.”

Growth & Economy

• “Demand in the economy is solid, though some sectors don’t feel it.”

• “Earnings remain strong, and that is encouraging firms to invest and hold onto workers.”

Labor Market

• “Businesses are still cautious about hiring but are not yet firing.”

Fiscal Policy

• “The budget deficit is ‘sizeable,’ fiscal policy over the past few years has been a tailwind for the economy.”

Financial Conditions

• “Credit dynamics in the banking sector are ‘reassuring’ at this point.”

Policy Meeting Schedule

• “Change in number of policy setting meetings is not a big deal.”

• “Changing the pace of policy meetings does have the advantage of a better flow of data for each session.”