Richmond Fed Chairman Barkin said that the Fed's fight against inflation has not yet been won, and as long as the unemployment rate remains low and asset valuations remain high, the US economy is likely to remain resilient.

Barkin said, "The US economy, especially its consumer spending, has shown more resilience after rate hikes than most people expected. As long as asset valuations remain high and unemployment remains low, this situation is likely to continue."

As a member of the Federal Open Market Committee (FOMC) who voted earlier this month to maintain rates in the range of 5.25% to 5.5%, Barkin noted that the lag effects of rate hikes are still playing out and "all these measures will eventually slow down the economy."

However, given the "amazing strength" of the US economy, he said he remains open to the possibility of raising long-term equilibrium interest rates and believes that policies may not be as restrictive as people imagine.

Barkin pointed out that under the pressure of high interest rates, the performance of the labor market has been historically good, and the 4% unemployment rate is still low.

Recently, some Fed officials have expressed more concern about the outlook for the US labor market. San Francisco Fed President Daly warned on Monday that the job market is approaching a turning point and that further slowing could mean higher unemployment. Chicago Fed President Evans warned that if policy is too tight for too long, "you will have to start worrying about the condition of the real economy." Fed Board Member Brainard also acknowledged that financial pressures in certain areas of the economy are increasing.

Fed officials projected in their June outlook that there would be one rate cut this year, four rate cuts next year, and inflation would return to the 2% target by 2026. Barkin did not discuss his views on rate cuts in his Friday speech.

He said, "Now is not the right time to provide guidance. Sometimes forward guidance is really helpful, and sometimes it's not. I don't think predicting the path of interest rates is particularly useful right now."

Inflation rebounded in the first quarter, surprising Fed officials. But recent data has eased. The monthly increase in the Consumer Price Index (CPI) did not change in May, and was the mildest since the summer of 2022. The core CPI index, which excludes food and fuel to better reflect potential price pressures, rose less than expected, up 0.2%, a welcome sign of a slowdown after a series of significant increases this year.

Even so, Barkin said that there is still price pressure in the economy and "we still have a lot of work to do."

Editor/Somer