Fed’s Barkin urges rate policy caution, Goolsbee warns of inflation concerns as AI risks loom

Richmond Fed President Tom Barkin urged caution in tackling inflation, calling it the biggest policy risk, while Chicago Fed President Austan Goolsbee warned that the AI-driven economic expansion and widening price pressures could intensify inflation, requiring policymakers to address rising costs.

Barkin said the US Federal Reserve should proceed “with care” as it considers how to tackle inflation, which remains the biggest risk to its policy mandate, according to a Reuters report. He added that he had not formed a baseline view on what the central bank should do at its December meeting.

“I don’t have a base case. We’ll get inflation. We’ll get another jobs report. Let’s see where the economy goes,” Barkin told reporters following a local chamber of commerce event. “I am not going to predict. We are going to get to the meeting and figure it out.”


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US stock and bond markets have been volatile since last week’s midterm elections as investors assess an impending shift in control of Congress and an apparent backlash in local elections against the rapid expansion of data centres by artificial intelligence companies.

AI investment is currently a key driver of US economic growth. However, many central bank policymakers also believe it is contributing to inflation, which remains well above the Fed’s 2% target.

Investors expect the Fed to raise interest rates at its December 8-9 meeting to exert further downward pressure on price growth.

Speaking to the Greater Greer Chamber of Commerce in South Carolina, Barkin said businesses continue to face rising costs and plan to pass them on to customers.

After nearly six years of inflation running above the Fed’s 2% target, “the risk lies on the inflation side of our dual mandate,” Barkin said.

“With demand healthy and inflation stubbornly elevated, the appropriate direction of monetary policy is relatively straightforward,” said Barkin, who will become a voting member of the Fed’s policy-setting committee in 2027.

However, he said it was “wise to move policy with care,” given the risks to the labour market and the Fed’s goal of achieving maximum employment.

Also Read: Citi downgrades US stocks to 'neutral' as AI sell-off, regulatory risks mount

Barkin described the risks surrounding AI as “particularly consequential,” pointing to sharp swings in technology stocks and shifting expectations for Fed rate increases following the elections.

If the technology “underdelivers,” it could weaken business investment, stock prices and consumer spending, undermining a major source of economic growth and potentially raising unemployment, he said.

Conversely, “AI could overdeliver and displace more workers than expected,” Barkin added.

Goolsbee warns AI boom could fuel overheating and inflation

Chicago Federal Reserve President Austan Goolsbee said policymakers must address the risk that rapid investment in artificial intelligence could overheat the economy and intensify broadening inflation pressures, according to Bloomberg.

“We’ve got to come to terms with this cost side and inflation side failure in the mandate,” Goolsbee said at an event in Chicago on Monday.

Speaking separately, Richmond Fed President Tom Barkin indicated support for further interest-rate increases but urged caution over the pace of tightening.

“The appropriate direction of monetary policy is relatively straightforward,” Barkin said in South Carolina. “However, risks to the demand outlook remain easy to envision. Because of that, it is wise to move policy with care.”

Fed officials held interest rates steady last month after raising them in September for the first time since 2023. Several policymakers have since signalled that additional rate increases may be necessary.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)