Fed's Barkin Urges Keeping Rates High to Avoid 1970s-Style Error

Federal Reserve Bank of Richmond President Thomas Barkin said the central bank needs to keep raising interest rates until it’s clear inflation is running at its 2% target even if the economy weakens to avoid a policy mistake similar to the 1970s.

“I’d like to see a period of sustained inflation under control,” Barkin said in an interview on CNBC Friday. “Until we do that, I think we are going to just have to continue to move rates into restrictive territory.”

While Fed officials view 2.5% as a neutral rate -- the level that neither speeds up nor slows down the economy -- Barkin said there’s uncertainty about the level and his goal was to have interest rates higher than expected inflation, or positive real rates.

Barkin is the latest Fed official to call for continued rate increases even as he said the latest inflation data were encouraging.

Increases in consumer prices slowed to an 8.5% year-over-year pace last month, a report showed Wednesday, from 9.1% in June, which was a four-decade high. A separate report Thursday showed that producer prices fell in July from the month prior, the first drop in more than than two years.