Federal Reserve's Powell: The battle against inflation is not yet won, the US economy is expected to remain resilient

According to the financial news app Zhitong Finance, Richmond Federal Reserve Chairman Powell said on Friday that the battle against inflation has not yet been won. As long as the unemployment rate remains low and asset valuations remain high, the US economy may maintain its resilience.

Powell said, "The US economy, especially its consumers, are much more resilient to rate hikes than most people expect. As long as asset valuations remain high and the unemployment rate remains low, this situation may continue."

Powell is a voting member of the Federal Open Market Committee (FOMC), which earlier this month voted to keep interest rates unchanged in the range of 5.25% to 5.5%, the highest level in over 20 years. Powell stated that the lagged effects of rate hikes are still playing out, and "all these tightening measures will eventually slow economic growth."

At the same time, "given the strong economic growth we are seeing," he accepts the view that long-term interest rates that maintain supply-demand balance "have already risen somewhat," and that policies may not be as restrictive as imagined.

Powell pointed out that the labor market has remained strong under the pressure of high rates, with the unemployment rate staying at a low of 4%.

Some Fed officials have recently become more concerned 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 further slowdown could mean an increase in the unemployment rate. Chicago Fed President Evans warned that in the case of prolonged tight policies, "you will have to start worrying about the state of the real economy." Fed Governor Lael Brainard also acknowledged that financial pressures in certain areas of the economy are intensifying.

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

US first-quarter inflation rebounded, surprising Fed officials. Recent data has shown some slowing down. The broad measure of inflation, the Consumer Price Index (CPI), remained flat in May, the most moderate level since the summer of 2022. The core CPI, excluding food and energy, rose by 0.2% month-on-month, lower than market expectations.

Nevertheless, Powell stated that price pressures still exist in the economy. He said, "We still have work to do."

It is understood that investors are betting that the US PCE price data to be released later on Friday will solidify expectations of rate cuts. Economists expect that the "inflation indicator favored by the Fed," the US May core PCE price index, will decrease from 2.8% last month to 2.6%, the lowest level since March 2021, although still above the Fed's 2% inflation target. The index is expected to increase by 0.1% month-on-month, slower than the 0.2% in April