Federal Reserve official Bullard: Current inflation levels are still too high but signs of easing have been observed.

Richmond Federal Reserve President Barkin warned that current inflation levels are still too high, but he also sees some preliminary signs that price pressures may soon begin to ease. Data released last Thursday showed that the Fed's preferred inflation measure - the Personal Consumption Expenditures (PCE) Price Index - rose by 4.1% year-on-year in May, the largest increase since April 2023. Despite the Middle East war pushing up oil and other commodity prices, the range of rising price pressures has become more widespread. Barkin said in an interview last Sunday, "These data are really too high." Barkin added, "Without continued factors such as the federal funds rate, the labor market, or other factors that can push inflation down, it is difficult to have confidence that inflation can return to the target level of 2%." Barkin said that with the recent ceasefire agreement between the US and Iran causing oil prices to fall, gasoline prices in his region have quickly dropped, which has encouraged him. However, he believes that there are other factors pushing up inflation, including the massive construction of artificial intelligence (AI) infrastructure. He said that the economic development in the coming months needs to be observed in order to determine the appropriate policy path. Earlier this month, Federal Reserve officials maintained the target range for the federal funds rate at a meeting. More and more policymakers are warning that the Fed may need to raise interest rates this year to contain resurgent inflation. Some of Barkin's colleagues are particularly concerned about the continued rise in prices in the service sector, as service sector inflation tends to be more sticky. In addition, inflation has remained above the Fed's 2% target for more than five years and has become a topic of concern across the US, leading to another layer of concern - consumer inflation expectations may be affected, making the Fed's task of restoring price stability more difficult. Barkin mentioned that the tariff and oil price shocks are now likely to be easing, which will help cool inflation. However, both factors seem to have had little impact on consumer spending in the past year, which has remained strong. In a consumer-driven economy, this could become a resistance to inflation eventually returning to the Fed's 2% target. Barkin also expressed concerns about the behavior of businesses in the current inflation environment. He said, "When businesses set prices, they take the current level of inflation into account, so I believe that inflation has some sustainability." "I am indeed concerned about this, which is why I believe that maintaining a moderately restrictive policy stance is reasonable." He pointed out that businesses are facing higher input costs, but at the same time, consumers are starting to resist higher prices for goods, so businesses are limited in how much cost they can pass on to consumers. During a recent trip to western Virginia, local business leaders told Barkin that they have not yet decided how much to raise employee salaries next year. When gasoline prices rose earlier, they once thought they might have to provide higher pay raises than usual to employees, but now with the fall in gasoline prices, they may not need to do so. In addition to Barkin, several other Fed officials have also issued warnings about inflation pressures in recent days. Minneapolis Fed President Kashkari said last Friday that due to the continuous appearance of widespread inflation signs, he expects to raise interest rates once this year, as he forecasted in the Fed's economic projections released earlier this month. Kashkari said, "I am worried about inflation, and this is not only related to the situation in the Middle East, but more importantly, more widespread inflation pressures are forming in the whole economy." Kashkari mentioned the ceasefire agreement between the US and Iran reached last week, but also pointed out that Iran seemed to violate the agreement overnight. Kashkari said, "I don't trust Iran. To what extent will they abide by the agreement? Will the marketsincluding the oil market, fertilizer market, and other related marketsreturn to normal or be under pressure and uncertainty in the long term?" Kashkari said that he is not in a hurry to raise rates immediately, and he did not predict that there would be further rate hikes in 2027 - he expects the Fed to maintain its policy rate unchanged at that time. However, he emphasized the need to observe the performance of future data. He had previously forecasted one rate cut this year. Kashkari said that policymakers are still working to restore inflation to the Fed's target level. He said, "How can we bring down inflation again within a reasonable time without causing too much damage to the labor market? This is the challenge we are currently working on." He said that a series of supply shocks to the US economy have made combating inflation more complicated, including the impact of the US-Iran war this year. He added that the construction of data centers to support the AI industry is "undoubtedly putting pressure on prices in certain industries in the economy." He said that business leaders in his region have also reported similar situations to him, stating that input costs are generally rising. Meanwhile, retail companies have observed a clear differentiation in consumer behavior: high-income groups continue to consume, while low-income American consumers are beginning to switch to buying cheaper goods, and although the frequency of visits to stores has increased, the quantity of goods purchased each time has decreased - indicating that they are finding it increasingly difficult to make their wages last until the next payday. Kashkari also warned that wage growth is still lagging behind inflation, but because wages usually lag behind rising prices, future wage growth may accelerate significantly, which could further complicate the Fed's task of cooling inflation. Kashkari said, "If we expect real wages to return to their previous growth trajectory, then we should expect wage pressures to rise." "This may not necessarily be a leading driver of inflation, but it may slow down the process of inflation falling back." He said that the US labor market has improved compared to the end of 2025. At that time, the Fed had cut interest rates three times in a row to support the weak job market. He said, "I have indeed seen signs of 'recovery' in the labor market." In addition, Chicago Fed President Gulbis also said that overall inflation pressure in the US is still too high, especially the trend of core inflation is still worrisome, and the Fed still needs to see more signs of improvement before being confident about the inflation outlook. Gulbis said that the May PCE data in the US did not completely lack positive signals. However, he emphasized that the biggest challenge the Fed currently faces is the risk of inflation resurfacing, and the most important indicator to observe this risk is still core inflation excluding food and energy prices. Gulbis said, "Looking at core inflation, it is still clearly too high, and the trend is not ideal. We must see improvement in this indicator."