Federal Reserve officials signal a hawkish stance, likely to maintain interest rates unchanged in the short term

According to the Zhitong Finance APP, several senior officials from the Federal Reserve stated on Thursday that under the current economic situation, inflationary pressures remain higher than the risks posed by a weak labor market, suggesting that the Federal Reserve may maintain interest rates unchanged for a longer period.

Federal Reserve Governor Adriana Kugler, speaking at the New York Economic Club, indicated her preference to keep the current policy interest rate unchanged, stating that "the risks of rising inflation outweigh the risks of declining employment and output."

"If the risks of rising inflation still exist, I will continue to support maintaining the federal funds rate at the current level," Kugler said. She noted that recently imposed tariffs have already exerted upward pressure on prices, and despite some signs of economic cooling, "it has not constituted a substantial slowdown."

A little later, Kansas City Fed President Jeff Schmied expressed similar concerns. He pointed out that while it is currently unclear how much tariffs will weigh on economic growth and employment, "tariffs will drive prices up in the coming months, and this impact may take some time to fully manifest."

Employment Data May Remain Strong; Inflation Will Be a Key Observation Point

The market generally expects that the U.S. Department of Labor will release the May employment report on Friday, showing that the unemployment rate remains at 4.2% for the third consecutive month, with approximately 130,000 new jobs added, which, although lower than April's 177,000, is still above the benchmark of 100,000 needed to indicate a healthy labor market.

Meanwhile, the Consumer Price Index (CPI) for May is expected to show accelerated growth due to the recent implementation of large-scale import tariffs beginning to reflect in the prices of goods and services. Although overall inflation had previously cooled, with the April core PCE index year-on-year growth rate at 2.1%, slightly above the Federal Reserve's 2% target, high price pressures have not been completely alleviated.

Federal Reserve's "Quiet Period" Approaches; Policy Outlook Remains Unclear

As the FOMC meeting on June 17-18 approaches, Federal Reserve officials have entered a "quiet period" before policy decisions, with this week being the last window for officials to speak. From their statements, most policymakers currently lean towards keeping interest rates unchanged in the 4.25%-4.50% range.

However, officials' views are not entirely consistent. For example, Federal Reserve Governor Christopher Waller previously stated that if the labor market needs support, he would be willing to "ignore" the one-time inflation spike caused by tariffs and consider cutting rates in the second half of this year.

Federal Reserve Chairman Jerome Powell also holds a more neutral stance. He believes that the current strong employment growth and easing inflation provide the Federal Reserve with space to "wait and assess the situation." Philadelphia Fed President Patrick Harker also emphasized that the Federal Reserve should "remain patient" and wait for clearer data before making decisions.

"The U.S. economy remains resilient, and I do not see dangerous cracks in the fundamentals," Harker pointed out in his last public speech before stepping down, "but pressures do exist, and in the current uncertain environment, we need to wait and observe."

"Dual Mandate" Difficult to Balance; Interest Rate Policy Needs Flexible Response

Although the Federal Reserve seeks to balance its two main goals of price stability and full employment, it seems that more officials currently prefer to prioritize addressing inflation risks. Schmied explicitly stated that while theoretically one should "ignore one-time price shocks," he "would not bet the Federal Reserve's credibility and trustworthiness on theory." Schmidt believes that under the uncertain impact of tariffs, the Federal Reserve must "remain flexible" to respond to the dual pressures that prices and employment may face.

In addition, Kugler also warned that other policies of the Trump administration could further drive up inflation, such as immigration restrictions and a new tax cut plan of up to $2.4 trillion, which is expected to exacerbate the fiscal deficit and further limit labor supply.

She pointed out that the decline in net immigration will affect labor supply in sectors such as construction and agriculture, although wage increases are not yet apparent, and their impact is expected to manifest as early as the end of this year or early 2026