MediumIV Macro Policy & Sovereign Debt22 September 2026, Tuesday
Richmond Fed President Barkin: core PCE at 3.3% in July, firms expect 4.1% price increases for 2027; door open to further hikes
In a speech titled "Why Hike?" in Baltimore on 22 September, Richmond Fed President Tom Barkin justified last week's 25 basis point hike on the grounds that inflation risks outweighed employment risks, and left open whether further hikes would be needed.
Barkin gave his speech at a CFA Society Baltimore event on 22 September 2026. According to the text published by the Richmond Fed, headline PCE inflation was 3.7% and core PCE 3.3% in July, and more than 60% of PCE items are rising by more than 3% a year. In the Richmond Fed's monthly surveys, the increase in prices firms charge has averaged 3.5% since the end of 2023; in the CFO survey run with Duke University and the Atlanta Fed, firms expect price increases of 4.1% for 2027. As reported by Yahoo Finance, this rate is more than twice the 2019 average.
Barkin said the strongest argument against a hike was the expectation that shocks would be transitory, but that tariffs were still being added, the conflict in the Middle East was continuing and AI investment was straining supply chains. On the labour side, unemployment was 4.1% in August and job growth above 160,000; the period in which unemployment has stayed at or below 4.5% is the longest run on record. The Fed raised the range to 3.75–4.00% on 16 September. Barkin left unanswered the question of whether further hikes would be needed and how many; the speech contains no assessment of long-term yields or the term premium.
Talay assessment
Bottom line
Barkin frames the hike not as one-off insurance but as a response to supply shocks that are becoming persistent. While core PCE stays at 3.3% and firms' price expectations at 4.1%, the Fed's next step will be wait-and-see or a further hike, not a cut. Unemployment holding at 4.1% gives the Fed room to keep tightening.
Likely effects
- Front-end dollar ratesNegativeWeeks
Leaving the door open to further hikes supports 2-year yields staying above the policy rate; this keeps dollar funding costs high.
- US corporate pricingNegative1–6 months
The 4.1% expectation in the CFO survey shows firms retain the capacity to pass costs on to prices; this delays inflation's return to 2%.
- Türkiye external financingNegative1–6 months
The possibility of the Fed continuing to tighten keeps dollar borrowing costs and risk premiums of emerging economies, including Türkiye, in a high band.
Possibilities, ranked
- 1Wait and see, door open55%
The Fed holds rates at 3.75–4.00% until year-end and keeps the option of a further hike on the table if data do not weaken.
Watch: August PCE data and whether unemployment stays around 4.1% in the September jobs report
- 2Second hike30%
If core PCE stays above 3.3% and price expectations rise, the Fed hikes by another 25 basis points before the year is out.
Watch: Price expectations in the Richmond Fed and CFO surveys rising above 4.1%
- 3Shocks fade15%
The oil and tariff effects recede quickly, the Fed sees no need for a further hike and its communication softens.
Watch: Headline PCE falling markedly from 3.7%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- July core PCE▼ 3.3%
- CFO survey 2027 price outlook▼ 4.1%
- August unemployment rate▲ 4.1%