Barr Says Fed Likely Needs More Rate Hikes to Curb Inflation

Federal Reserve Governor Michael Barr said further rate increases will likely be needed to bring inflation back to the central bank’s 2% target. He spoke Wednesday in Chicago, a week after the Fed raised its benchmark rate by a quarter point.

Barr said inflation remains above target and is not clearly moving down fast enough. He described economic growth as strong and the labor market as solid, with inflation risks rising and labor-market risks easing.

The Fed lifted its target range to 3.75% to 4% on September 16 in a unanimous vote. In its latest projections, 16 of 18 policymakers indicated at least one more increase may be needed this year.

Barr said the move was a needed adjustment because policy had fallen out of step with economic changes. He named tariffs, conflict in the Middle East, disruptions tied to Russia’s war in Ukraine and a surge in AI investment as forces adding to price pressures.

His comments point toward further tightening, but he gave no timetable or exact number of increases. The Fed’s September projections put the median year-end rate at 4.1%, roughly a quarter point above the current range’s midpoint.

Higher rates can make borrowing more expensive for households and businesses. Mortgage costs are already elevated: the average rate on a 30-year fixed mortgage reached 7.12% last week, according to the Mortgage Bankers Association.

Barr’s speech also underscored the tension for housing. He said the Atlanta Fed’s home-affordability index fell to 68 in July, its lowest reading in 21 years; a reading below 100 means a median-income family cannot afford a median-priced home at prevailing mortgage rates.

The next signal will come from inflation and employment data, which will shape whether officials follow through on their projections. Barr said price stability remains essential to sustaining growth and employment.