"I'm open to the idea" the neutral interest rate has shifted up - Fed's Barkin

Investing.com -- The Federal Reserve's push to raise interest rates to more than two-decade highs will weigh on the U.S. economy, but it remains uncertain if the neutral level of borrowing costs has increased, according to Richmond Fed President Thomas Barkin.

In prepared remarks delivered in Paris, Barkin said the Fed's hikes, which have lifted the key fed funds rate to a range of 5.25% to 5.5%, "will eventually slow the economy further."

But he flagged that inflation -- the central focus of the rate rises -- has proved to be "stubborn," defying expectations that it would quickly cool back down to the Fed's stated 2% target.

Barkin added that while price growth should abate over time, the Fed's monetary policy may not be as tight as was once broadly believed.

As a result, he said he was "open to the idea" that there has been a shift higher in so-called "r-star" -- the theoretical level of interest rates that neither hinders nor fuels economic activity. Such a rise would imply that the Fed may need to also keep rates at a higher level to constrain inflation.

"It is too soon to tell, but there’s one way to find out: proceed deliberately while keeping a close eye on the real economy. That’s what I am doing," Barkin said.

His comments come prior to release on Friday of the personal consumption expenditures price index for May. The figure, the Fed's preferred gauge of inflation, is tipped to show that price gains in the U.S. cooled on a month-on-month basis.

Earlier this month, the Fed held rates steady and signaled that it now expects to unveil only one cut in 2024, down from a prior estimate of three, as many policymakers called for more evidence that inflation was sustainably easing.

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