Fed’s Barkin Flags Consumer Trade-Down Trend as Tariff Costs Loom

Richmond Federal Reserve President Thomas Barkin said this week that the central bank could face simultaneous pressure on both inflation and unemployment, adding that the balance between the two remains uncertain. While overall consumer spending is still "solid," he noted that households are tiring of higher prices and appear increasingly willing to trade down to cheaper brands, a shift that could make companies more cautious about passing along the full cost of the United States’ 145% tariff on Chinese goods. Barkin described the current 4.2% unemployment rate as “not a bad number,” pointing out that slower job gains are broadly matched by slower labour-force growth. Businesses, he added, have been holding back on hiring, leaving them with limited scope for large layoffs should cost pressures intensify. If firms do need to cut expenses, some may turn to artificial-intelligence tools to save on labour, he said. Atlanta Fed President Raphael Bostic offered a similar assessment, warning that financial stress—which began among low- and moderate-income households—is now moving up the income scale. Rising credit-card use for essentials is an early sign of strain, Bostic said, even though higher-income consumers remain relatively stable for now. Both policymakers emphasised that the Federal Reserve’s policy stance is “well positioned” to adjust as clearer data emerge, but Barkin cautioned that it is still “early days” for companies re-engineering supply chains in response to tariffs. The officials’ remarks come ahead of Chair Jerome Powell’s keynote address at the Jackson Hole symposium later this month, where investors will look for further guidance on the path of interest rates.