Barkin Says Fed Response to Iran War Depends on Length of Shock

Federal Reserve Bank of Richmond President Tom Barkin said the central bank’s response to the US-Israel war with Iran will depend on how long the impact on the US economy lasts.

“Gas prices, obviously, if they’re up, that is inflationary,” Barkin said Thursday on Bloomberg TV. “Textbook monetary policy would be you look through a short-term shock, but you don’t look through a long-term shock, and I think that’s a lot of the assessment people are going to have to make.”

Fed officials next meet March 17-18 and have signaled they are likely to hold rates steady for a second straight time as they seek more progress on inflation. The Fed’s preferred inflation measure showed prices rose 2.9% in December, nearly a full percentage point above the central bank’s 2% target. Barkin spoke exclusively to Bloomberg News' Mike McKee. Barkin said recent and expected data reflects “a couple months of relatively high inflation,” which “certainly puts pause to any conclusion that we’re done fighting this.”

Policymakers have broadly embraced the view that the labor market is stabilizing, adding to their caution about additional rate cuts after three reductions at the end of 2025. Barkin said officials delivered those cuts last year because of a sense that risks to the labor market had risen, while the chances of higher inflation had fallen.

“The data that’s come in over the last couple months would, I think, suggest it’s moved in the other direction,” he said of the balance of risks.

Fresh data out Thursday showed new filings for US unemployment benefits held steady last week, although continuing claims — a proxy for the number of people receiving benefits — climbed by the most so far this year.

Barkin said recent employment figures have been “reassuring.”

Fed Chair

The Richmond Fed chief also said he looks forward to working with Kevin Warsh, the former Fed governor whom President Donald Trump has nominated to lead the central bank when Jerome Powell’s term as chair ends in May.

“I like and respect Kevin, and I trust he’ll do a good job,” Barkin said.

Warsh will likely face pressure to deliver rate cuts, since Trump made clear that was a requirement for his selection. Warsh in recent months has laid out a case for lower rates, including by arguing that the Fed can shrink its $6.6 trillion balance sheet to create room for such reductions.

Barkin signaled on Thursday that he could be receptive to the idea.

“Instinctively, I like the idea of the Fed having a smaller footprint in financial markets, I think, subject to still being able to operate monetary policy, control rates well and subject to not having severe adverse reactions in the markets,” he said.

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