Federal Reserve’s Barkin warns of potential economic instability ahead
Richmond Fed president says economic uncertainty has 'deepened and spread' as inflation lingers above target and geopolitical risks mount
Richmond Federal Reserve President Thomas I. Barkin offered a sobering assessment of the US economic outlook, warning that the fog surrounding the economy hasn’t cleared. It’s gotten thicker.
Speaking at East Tennessee State University on March 27, Barkin used the metaphor of “driving through fog” to describe the challenge facing policymakers. Some of the policy questions from 2025 have seen partial answers, he acknowledged, but the overall picture has grown murkier. His exact framing: “the fog has lifted. If anything, it’s deepened and spread.”
The numbers behind the fog
On paper, certain indicators look decent. Unemployment sits at roughly 4.4%, consumer spending remains positive, and GDP grew at around 2% over the previous year.
But the cracks are harder to ignore. Inflation remains nearly a full percentage point above the Fed’s 2% target. That’s a meaningful gap for a central bank that has spent years trying to wrestle price growth back under control after it peaked above 7% in 2022.
Job growth, meanwhile, has stagnated. A low unemployment rate paired with flat hiring creates an awkward dynamic: the labor market isn’t falling apart, but it’s not generating momentum either.
The Fed has already cut interest rates by 175 basis points over the preceding 18 months, a significant easing cycle designed to support economic activity.
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What’s fueling the uncertainty
Barkin pointed to several sources of instability, and they span the globe.
Geopolitical tensions related to Iran are pushing on oil prices, introducing a variable that central bankers can observe but can’t control.
Then there’s artificial intelligence. Barkin flagged the unpredictable effects of AI advancements on both labor markets and productivity.
A data-driven stance in a data-poor environment
Barkin emphasized that the Fed would continue taking a cautious, data-driven approach to monetary policy.
Barkin’s inflation concern is particularly telling. The decline from above 7% in 2022 to roughly 3% represents real progress. But that last percentage point of progress, getting from 3% to 2%, has proven stubbornly difficult.
What to watch from here
Barkin is scheduled to address the Greenville Chamber of Commerce on August 13, which could provide an updated read on whether conditions have improved, deteriorated, or simply remained foggy.