Richmond Federal Reserve President Thomas Barkin expressed optimism about progress on inflation, but he stated that the battle is not over and pointed out potential risks that could exacerbate price pressures.

Barkin said at an event in Virginia on Thursday (October 10), "We are definitely moving in the right direction," while also adding, "But I am not ready to declare victory over inflation."

When asked about factors that could lead to a sustained rise in inflation, Barkin mentioned conflicts in the Middle East and the possibility that housing demand could outstrip supply as the Federal Reserve lowers interest rates.

However, he added, "I do not want to let the possibility of what might happen hinder our progress on inflation and overshadow the fact that we have actually made a lot of progress."

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The economy shows resilience

Recent data shows that the economy has shown resilience as price pressures have largely eased. Better-than-expected employment data in September led to a decline in the unemployment rate due to increased job activity, easing concerns about the Federal Reserve's slow response to potential risks in the job market.

However, the latest data released earlier on Thursday showed that inflation in September was higher than expected.

The U.S. Bureau of Labor Statistics specifically showed that the U.S. Consumer Price Index (CPI) rose by 0.2% month-on-month and 2.4% year-on-year in September, both 0.1 percentage points higher than market expectations.

Barkin said in an interview after the meeting that he is still studying the newly released data, and some aspects of the report are encouraging, such as a monthly slowdown in housing costs.

Barkin also said that he believes the employment report reflects a cooling of wage growth, but employers are reluctant to lay off staff, "We are in an environment of low hiring and low firing."Last month, Barkin voted in favor of the Federal Reserve's interest rate cut, with Federal Reserve officials lowering the key policy rate by 0.5 percentage points to a range of 4.75-5%. Barkin described this move as "realigning the restrictive stance of policy."

Federal Reserve officials will announce the next interest rate decision after the meeting on November 6th and 7th. Futures markets indicate that investors have withdrawn bets on policymakers choosing to make another substantial rate cut at this meeting, with current bets on a cut of about 25 basis points.

Investors anticipate that by the end of 2024, the Federal Reserve will cut rates by an additional 50 basis points, which is in line with the median forecast released by Federal Reserve officials in September.