Unlock Editor’s Roundup for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
A senior Federal Reserve official has warned of the threat of a revival of US inflation after Donald Trump takes office, even as he forecast solid growth for the world’s largest economy overall.
Richmond Fed President Tom Barkin said Americans were still spending freely, job losses remained low and American consumers were beginning to resist higher prices.
But while that combination could bring “more upside than downside in terms of growth” in 2025, Barkin said he also expected “more risk on the inflation side.”
“Wage and product costs may come under pressure,” he said in a speech on Friday. “If they do, given recent experience with inflation, price-setters may have more courage to pass on costs.”
Barkin’s comments come just weeks before Trump returns to the US presidency with a pledge to raise tariffs and cut taxes and regulations. He has also vowed to crack down on immigration and begin mass deportations.
Some economists have warned that the policy agenda could spark a new period of inflation in the US.
Other Fed officials had also begun to factor Trump’s return into their projections, US central bank chairman Jay Powell said last month, including “highly conditional estimates of the economic effects of policies in their projections”.
Barkin stressed that uncertainty about what Trump would actually do was clouding the outlook, but assumed there could be “a prolonged period of back and forth” as final plans are worked out.
If economic growth were to falter unexpectedly, he said, “the damage could be mitigated by the potential to roll back some of those policies.”
The Fed last month cut interest rates to 4.25-4.5 percent, while officials sharply cut their estimates for rate cuts in 2025 and 2026 and sharply raised their inflation forecasts.
Most officials now expect only half a point of cuts this year, down from the full percentage point they did in September.
Barkin on Friday said the Fed was “well positioned no matter how the economy plays out.”
“Should employment weaken or inflation re-emerge, we have the tools to respond,” he said.
