Thomas Barkin called US inflation the number one risk for the Fed. The head of the Federal Reserve Bank of Richmond spoke on Thursday, November 5. Prices, he said, remain too high.
The debate inside the Fed is only about the pace. Barkin sees the policy path itself as clear, and a gradual rate hike as making sense. The Fed rate is the price of money in the US economy; yields, the dollar and risk appetite depend on it.
For a trader, this is a change of framework. Inflation at the Fed is now discussed in terms of raising rates, not cutting them.
What did Barkin say?
He described the economy calmly. Inflation is not accelerating, but it is not slowing either, and Barkin considers current policy roughly neutral. That is, the rate is neither slowing the economy nor heating it up.
- Hiring - companies are cautious, but they are not laying people off yet.
- Demand - steady.
- Company profits - strong.
- Bank lending - the situation is "encouraging."
Why aren't prices falling?
Barkin named the reason directly. The costs of the last 18 months, starting with tariffs, are pressing on a broad front. Companies believe they are obliged to pass them into prices.
- Tariffs and costs. The pressure is on a broad front, not on individual goods.
- Construction for artificial intelligence. In the short term it accelerates inflation and pulls demand along with it, while the rate has little effect on the investment itself.
- The budget. Barkin called the deficit "notable" and fiscal policy a tailwind for the economy.
What happened with the markets?
Thursday's backdrop was harsh even without Barkin's words. The Nasdaq Composite was down about 4% in the morning session on a selloff in AI-related stocks. The S&P 500 and Dow gave back all of Wednesday's gains.
- Below $4,100 per ounce - gold, amid falling US Treasury yields.
- Down 0.5% to 101.35 - the DXY dollar index the day before, a four-week low. DXY is the dollar's exchange rate against a basket of currencies.
- 158.25 - USD/JPY held at this level.
- Around 0.7000 - AUD/USD.
What's next?
The US jobs report (NFP) comes out on Friday. The market will plug the fresh jobs numbers straight into the rate-hike logic. The publication date can be seen in the economic calendar.
The main point: the Fed is now discussing not a rate cut but a rate hike, and NFP is read through this framework.
Did you hold a position this Thursday?
Nasdaq down four percent, gold under 4,100, and the Fed talking about a rate hike. On sessions like these there is one question: what your account is allowed to do. With some prop firms, trading during the minutes of the NFP release is openly permitted; with others, a trade at the data release zeroes out the account. There is also a daily loss limit that a day like this eats up entirely. These lines must be read before paying for a challenge, not on Saturday with access closed. Friday's data is already close.