Inflation is above the target but not accelerating. What signals is the Federal Reserve sending?

Federal Reserve Richmond Fed President Barkin recently stated that although current inflation levels are above the Fed’s 2% target, there are no signs of acceleration yet. This statement appears calm on the surface but actually reveals the Fed’s current policy dilemma: inflation still needs vigilance, but the risks of economic downturn cannot be ignored.

Inflation Status: High but Stable

According to the latest reports, the US PCE index has reached 2.8%, still below the Fed’s 2% target. This means that while inflation has retreated from its peak, it remains above the target. Barkin’s statement that it “has not accelerated” is key — indicating that inflation has not worsened and is operating at a relatively stable high level.

This judgment is very important for the market. If inflation begins to accelerate again, the Fed may be forced to pause or even reverse its rate cuts. But if inflation remains stable or continues to ease, room for rate cuts will open.

The Fed’s “Walking a Tightrope” Mode

According to related information, the Fed has already cut rates by 75 basis points in 2025, and current interest rates have entered the neutral zone. This means the policy is neither overly tight nor overly loose. The true intention behind Barkin’s speech is:

• Inflation Still Needs Attention: Although not accelerating, 2.8% is still above the target, so we cannot be complacent
• Employment Faces Pressure: While seemingly steady, hiring is cooling, revealing dual risks
• Policy Remains Flexible: No preset path, all depends on data

This is precisely the shift from the “big bang” rate cuts to “fine-tuning” by the Fed.

Key Follow-up Observations

According to related reports, Fed officials will speak intensively this week, including heavyweight voters like Bostic and Williams. More critically, the US December CPI data will be released on January 13.

Implications for the Crypto Market

From the perspective of Fed policy, the signals conveyed by this speech are relatively stable. No acceleration in inflation means the rate cut process will not be forced to halt, but it also won’t accelerate. This provides the market with a relatively certain policy expectation framework.

However, it is important to note that Fed policy depends on subsequent data. If inflation rises again or employment deteriorates, policy may change. Therefore, upcoming CPI data and other economic indicators will be important “pricing anchors.”

Summary

The core message of Barkin’s speech is: although inflation remains above the target, the stable trend gives the Fed more flexibility. The Fed has shifted from aggressive rate cuts to fine-tuning, and the policy direction will depend more on subsequent data. For the crypto market, this means interest rate expectations are relatively stable, but close attention must be paid to changes in key economic data like CPI. The speeches of multiple Fed officials this week and the upcoming CPI release will further clarify the Fed’s policy stance.