Fed Hawks vs. Doves in Full Clash! Barkin Says Wait, Hammack Urges Rate Hike

Federal Reserve officials remain deeply divided over the next step in interest rate policy. Richmond Federal Reserve Bank President Tom Barkin said Thursday (13th) that inflation may cool on its own as shocks from tariffs, oil prices, and the artificial intelligence (AI) investment boom fade, and it remains uncertain whether the Fed needs to raise rates further. Cleveland Federal Reserve Bank President Beth Hammack, on the other hand, reiterated her call for immediate rate hikes to suppress excessively strong demand and bring inflation back to the 2% target.

Barkin, in remarks prepared for the Greenville Chamber of Commerce event, stated that the real question is not whether inflation will eventually return to 2%—as the Federal Open Market Committee (FOMC) has clearly committed to that goal—but rather how it will get there.

He pointed out that the 'open question' facing the Fed is whether the central bank must raise rates further, or whether inflation is already on a path back to target. Barkin did not explicitly state whether he supports a near-term rate hike, but suggested that many of the forces pushing up prices are temporary and may naturally weaken over time.

Barkin: Tariffs, Oil Prices, and AI Frenzy Will Eventually Fade

Barkin noted that most current inflation pressures stem from higher tariffs, rising oil prices, and surging demand for equipment, materials, and labor due to AI infrastructure development. As companies rush to expand data centers and computing facilities, prices for related supplies and labor have been pushed up—but this investment boom should naturally slow at some point.

If these pressures gradually subside, many believe the current interest rate level remains sufficiently restrictive to bring down inflation without further rate hikes. The Fed held its benchmark rate steady in the 3.5% to 3.75% range last month, and recent consumer and producer price data have both come in at or below expectations, reducing the urgency for an immediate rate hike in September.

However, Barkin also warned that inflation may have become more entrenched. If supply chain issues persist or the AI investment boom lasts longer than expected, price pressures may not ease quickly.

Moreover, with U.S. inflation consistently above the Fed's target since 2021, business and consumer inflation expectations may have shifted upward. Once markets grow accustomed to higher price increases, this could further fuel actual inflation, in which case the Fed would still need to raise rates.

Hammack Urges Immediate Rate Hike: Policy Lacks Restrictive Power

In contrast to Barkin's cautious stance, Hammack again clearly advocated for immediate Fed action. She acknowledged being pleased with recent declines in inflation data but said she is not yet convinced the trend will continue, nor is she certain that price increases will fall enough to bring inflation back to the 2% target.

Hammack stated that businesses are still keen on raising capital and borrowing, actively seeking opportunities to expand investment. While strong growth expectations are positive, overly robust economic growth could create further upward pressure on prices, so monetary policy must provide a degree of restraint to bring inflation—currently above 3%—back down to 2%.

Earlier this week, she also noted that current interest rates do not impose a 'meaningful restraint' on the economy, and the Fed may need several rate adjustments to return inflation to target—though she declined to pre-judge where the terminal rate should ultimately settle.

Hammack was one of three dissenting officials at the Fed's previous meeting, where she advocated for a 25-basis-point rate hike. Despite July's core Consumer Price Index (CPI) rising only 0.2% month-on-month—viewed by economists as relatively mild—she maintains that a single improved data point should not lead to complacency.

Following recent weak employment reports and cooling inflation data, investors widely expect the Fed to hold rates steady at its September meeting, though a rate hike in October or December remains possible. The starkly different positions of Barkin and Hammack highlight that the Fed has yet to reach a consensus on whether inflation will cool on its own or whether current policy is sufficiently restrictive.