Fed's Barr Warns Inflation May Persist Until 2027, Damping Rate Cut Hopes
Fed Vice Chair for Supervision suggests a prolonged battle against inflation, hinting that restrictive monetary policy may be needed 'for longer.'
A top Federal Reserve official has issued a stark warning that the central bank's fight against inflation could be a protracted affair, potentially lasting until 2027. Fed Vice Chair for Supervision, Michael Barr, cautioned that persistent inflationary pressures might force the Fed to maintain its restrictive monetary policy stance 'for longer' than markets currently anticipate.
Speaking at the Economic Club of Minnesota, Barr's hawkish tone clashes with growing investor optimism for a series of near-term interest rate cuts. He projected that it could take until the end of 2027 for the Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, to return to its 2% target. .
The comments introduce a fresh layer of uncertainty into a market that had been pricing in a more dovish path from the central bank. Despite the Fed implementing a 25-basis-point rate cut in September, driven by concerns over a weakening labor market, Barr's statement underscores the deep divisions within the Federal Open Market Committee (FOMC).
Barr attributed the persistent inflation partly to the economic impact of rising tariffs, which have complicated the central bank's efforts. The Fed official's remarks highlight the as policymakers balance the dual mandate of controlling inflation and maintaining employment.
Despite Barr's cautionary stance, market participants, as tracked by the , are still betting on further rate reductions this year. This divergence in expectations sets the stage for potential market volatility as investors digest the conflicting signals from Fed officials and incoming economic data.