A growing number of U.S. firms are able to pass along their higher costs to consumers, and it remains to be seen how high the Federal Reserve will need to raise its benchmark policy interest rate to get inflation under control, said Richmond Fed President Tom Barkin on Wednesday.
“I am increasingly hearing” that companies have so-called “pricing power,” Barkin said, in an interview with Bloomberg.
Businesses, still frustrated by supply chain woes resulting from the pandemic, are seeing costs increases from suppliers and are “determined” to pass those higher costs on to consumers, Barkin said.
Firms are not yet getting a reaction in the marketplace that indicates they will lose market share because of their higher prices, he added.
The good news, Barkin said, is that business executives don’t expect this situation to last into 2023.
“They think a lot of these temporary factors will cease, they see what the Fed is doing on rates, they believe a lot of the excess saving in consumers’ pockets will come out” he said.
“That’s what we’re trying to meet. An inflation situation that is settling,” Barkin added.
Earlier this month, Barkin said the Fed was 9-10 quarter-point rate hikes away from around a 2.75%- 3% “neutral” policy that neither restricts or boosts growth.
On Wednesday, he refused to be drawn into a discussion of whether he supports a 50 basis point increase in the Fed’s policy rate at its next meeting on May 4. He said he was “open to it” but would make a decision after seeing all the economy data over the next month. Barkin is not a voting member of the FOMC this year.
The Fed’s benchmark Fed funds rate is far away from “neutral” and it is not clear rate will constrain the economy “for a while,” Barkin said.
The Richmond Fed President was upbeat on the economic outlook, saying he was struck by the strength of underlying demand in the economy.
Consumers still have an estimated that excess savings is well over $2 trillion, he said. In addition, business investment and spending is strong and state and local governments are flush with cash.
Barkin said the labor market remained very tight but that businesses no longer have the same “level of angst” about it that they did late last year.