Richmond Federal Reserve Bank President Thomas Barkin signaled a hawkish stance on Thursday (November 5), stating that the Fed still needs to raise interest rates, but the magnitude and pace of such increases remain uncertain. He is also watching closely the current high inflation, the robust job market, and the potential credit risks arising from the debt-fueled expansion of the AI industry and large technology companies.

The employment and inflation landscape is clear, and a gradual interest rate hike is favored.

In an interview at the Richmond Fed's 2026 Chief Financial Officer Summit, Barkin stated that while the US unemployment rate is near historically low levels, inflation remains high. The policy direction is relatively clear, with the core uncertainty lying in the pace of interest rate hikes . He said that if the external environment remains volatile and new economic data continues to emerge, then gradual interest rate hikes are a reasonable choice , which is also his current preferred path. This statement comes just over a week after the Federal Open Market Committee (FOMC) decided to maintain the benchmark interest rate range of 3.75% to 4%. Barkin currently does not have a voting right, but he will gain FOMC voting rights in 2027. Previously, when the September meeting raised interest rates by 25 basis points, most officials predicted a high probability of another hike before the end of 2026. The CME FedWatch Tool shows that the market is pricing in an over 80% probability of a December rate hike and expects another rate hike in 2027.

Current policies are leaning towards easing, with inflation being the primary risk.

Barkin argued that current interest rates are close to the neutral rate, a range that neither suppresses nor stimulates the economy. He explained that the effect of tightening policies is mainly reflected in suppressing consumption, which accounts for about two-thirds of the US economy. Currently, consumption remains high, indicating that current policies still have a certain degree of easing. In his view, inflation is the most significant risk at present, and he hopes that the September rate hike and subsequent policies will suppress inflation. He also discussed the dual impact of AI on prices; in the short term, AI is one of the sources of upward price pressure, but in the long term, it can boost productivity, thereby helping to lower inflation.

The debt-fueled spending spree among tech giants conceals hidden credit risks.

Barkin also highlighted the debt issues of large cloud service providers, noting that these companies are expected to issue over $500 billion in bonds this year, and the related credit risks warrant continued monitoring. He stated that leading cloud service providers have ample cash flow from their core businesses and generally good credit standing, so the risks are not concentrated on these leading companies. The real concern lies in the intermediate links of the supply chain, where some intermediaries may be bearing undisclosed hidden risks, requiring close attention to the risk exposure points within this sector.

Conclusion

Thomas Barkin's remarks continued the hawkish tone within the Federal Reserve, with expectations of interest rate hikes continuing to rise amid a combination of low unemployment and high inflation. In addition to the inflationary theme, the massive debt driven by the AI industry chain has become a new risk factor for the Fed, which will continue to influence subsequent policy decisions.