Insights 
VT 
Richmond Fed President Thomas Barkin has expressed reluctance to cut interest rates amidst ongoing inflation risks from tariffs. Despite signs of inflation with price indices above target, there is no apparent urgency for a rate cut given the strong job market and consumption levels.
Barkin notes that firms are anticipating price increases due to expensive imports entering inventories. Additionally, some firms not directly affected by tariffs are using trade policy uncertainty as an excuse to raise prices.
Impact of Trade Policy
The lack of clarity around trade policy means businesses are cautiously delaying capital spending and hiring decisions. Barkin’s views differ from FOMC member Christopher Waller, who is less worried about tariff-related inflationary effects.
In this interview, Barkin is clearly holding his ground against the idea of cutting rates too quickly. The reasoning lies not just in present inflation readings, which still sit above where the Fed would prefer, but in expectations—specifically, what firms are preparing for. If companies already assume they’ll be dealing with pricier imports, they’ll start baking those costs into final prices. That puts upwards pressure on inflation, even before any data confirms it.
Meanwhile, Barkin is wary of the way uncertainty itself—especially around tariffs—is now a foil for price hikes, even among firms not directly impacted. They’ve caught on to a trend: unpredictable policy lets them nudge margins, and they can do it without raising too many eyebrows. It’s interesting, and slightly sobering, that this has become a behavioural shift among businesses. We should be alert to the implication that inflation’s path may not be as responsive to easing cycles as expected.
The hesitation in business investment and job creation isn’t hard to understand. Firms are sitting in a fog of uncertainty. Not so much pulling back, but refusing to commit. Until there’s a sharper picture on which way trade rules might move—or clarity in broader economic markers—they’re pausing. And that translates into slower downstream activity, which would usually be a reason to consider stimulating the economy. But Barkin doesn’t seem convinced the timing is right.
Policy Decision Divergence
Waller, by contrast, appears less concerned. His stance suggests more comfort in brushing off the inflation risks from tariffs, perhaps viewing them as limited or short-lived. That divergence matters. It may tell us something about the broader debate unfolding inside the policy-setting body. At the very least, it reveals gaps in how future rate decisions may play out.
So what now? As price expectations continue to adjust across sectors, we may see further dislocations under the surface. Market timing becomes more delicate when rates aren’t yet showing a direction—and when headline inflation remains a live concern. Naturally, it’s unwise to take rate futures at face value, particularly when opposing voices within the committee are nudging in separate directions.
It would benefit us to assess how inflation-linked instruments are behaving relative to shorter-term rates. Dislocations and mismatches can offer valuable entry points or warn us away from stretched positioning. Short options premiums, for instance, might feel attractive on first glance, but pricing them without appreciating the underlying persistence of trade-induced inflation may lead to costly surprises.
It’s probably best to extend focus beyond the next policy meeting. We suggest watching how forward rate agreements evolve as businesses shift pricing strategies. That, more than headline statements, may steer positioning correctly. For now, risks aren’t diminishing—they’re just moving more quietly.
