RESEARCH TRIANGLE PARK – The Federal Reserve remains committed to reducing inflation in the U.S. economy, an official told an audience at the 21st Annual Economic Forecast Forum on Friday afternoon.

According to Tom Barkin, the president and CEO of the Federal Reserve Bank of Richmond, demand for goods and services will weaken in time, but inflation still persists in the U.S. economy.

“Inflation is still too high,” said Barkin.  “We forecast additional rate increases this year.”

But instead of the rapid, historic increases in the federal funds rate that began in March 2022 and accelerated throughout the summer and through the Federal Reserve Open Market Committee’s most recent meeting in December, Barkin noted that he expects the Federal Reserve to slow the pace and severity of interest rate hikes in 2023.

“We moved quickly last year, and what we’re doing is taking our foot off the gas,” said Barkin.  “It makes sense to steer more deliberately.”

According to the CME FedWatch Tool, there is a 75.7% probability that the Federal Reserve will increase interest rates by 25 basis points, or one-quarter of one percent, at the February 2023 meeting of the Open Market Committee.

The reason that the Federal Reserve took aggressive action in 2022, said Barkin, is “pretty straightforward.”

That’s because inflation remained high and growth continued in the economy, he noted.

“But I can also make the case on an emotional level,” “said Barkin.  “We hate inflation.”

In periods of high inflation, consumers and households become uncertain when to spend, and when to save, and when to invest, he said.  “You make like the fact that your boss gave you a wage increase,” said Barkin, only to then see that get eaten away at the gas pump.

“We all know what people care about: people care about food, and gas, and shelter,” said Barkin.

UNC economist: Today’s jobs report signals a recession is coming in 2023

What’s coming in 2023

Despite changes in the core inflation rate and other inflation measures in recent months, Barkin noted that the U.S. economy isn’t yet in the clear.  Instead, said Barkin, the data is showing that inflation is persistently higher than the Federal Reserve’s 2% inflation target.

“The pandemic era is still with us,” said Barkin.

But there are some signs that the Federal Reserve’s decision to raise interest rates is slowing price appreciation in the economy.

“Demand will weaken in time,” said Barkin.  “Wage gains are still higher than pre-pandemic levels.”

And the data on employment, including the report released by the Labor Department on Friday morning that found the U.S. economy had added 223,000 jobs, does show strength in the labor market that could put continued upward pressure on wages into 2023.

“This has been the most predicted potential recession in economic history,” said Barkin.  “The data we’ve seen, including the data we saw this morning, keeps pushing the recession timeline out.”

UNC economist: Today’s jobs report signals a recession is coming in 2023