Federal Reserve Bank of Richmond president Thomas Barkin said the inflation battle still hasn’t been won, and the US economy is likely to remain resilient as long as unemployment remains low and asset valuations high.

“The US economy, particularly its consumer, has been much more resilient to rate increases than most expected and is likely to stay so as long as valuations remain elevated, and unemployment remains low,” Barkin said Friday in remarks prepared for a Global Interdependence Center conference in Paris.

Barkin is a voting member of the Federal Open Market Committee, which earlier this month voted to hold interest rates steady in a range of 5.25% to 5.5%, the highest in more than two decades. The Richmond Fed chief said lagged effects from the rate increases are still playing out, and “all this tightening will eventually slow the economy.”

At the same time, “given the remarkable strength we are seeing in the economy,” he said he is open to the idea that the longer run rate that keeps supply and demand in balance “has shifted up somewhat” and that policy may not be as restrictive as perceived.

Barkin noted the labour market has held up historically well under the strain of high rates, and, at 4%, “the unemployment rate remains low.”

Some Fed officials have sounded more concerned of late about the prospects for the US labour market, with San Francisco Fed president Mary Daly warning on Monday the job market is nearing an inflection point, where further slowing could mean higher unemployment. Chicago Fed president Austan Goolsbee warned separately that with too-tight policy for too long, “you’re going to have to start worrying about what’s happening to the real economy.” Fed governor Lisa Cook also acknowledged the growing financial strain in some pockets of the economy.

US central bankers in their June outlook penciled in one interest rate cut this year and four cuts next year, with inflation returning to the 2% target in 2026. Barkin didn’t discuss his outlook for rate cuts in the text of Friday’s speech.

Inflation snapped back in the first quarter, surprising Fed officials. More recent readings have eased off. The consumer price index, a broad gauge of inflation, was unchanged in May, the tamest since the summer of 2022. The core measure, which excludes food and fuel for a better snapshot of underlying price pressures, rose a less-than-projected 0.2% - a welcome break after a series of larger advances this year.

Even so, Barkin said price pressures remain in the economy. “We still have work to do,” he said in reference to inflation.

  - Bloomberg