Fed Officials Assess the Relationship Between Inflation and Interest Rates in the U.S.

Following the release of inflation data in the United States, Federal Reserve officials St. Louis Fed President Alberto Musalem and Kansas City Fed President Jeffrey Schmid provided their assessments on the current state of the economy. Both officials shared their views on inflation and interest rates, offering different perspectives.

Fed/Musalem: “We are in the final stretch of the fight against inflation, but risks remain.”
St. Louis Fed President Alberto Musalem indicated that the U.S. Central Bank is in the final stages of its fight against inflation. Musalem pointed out that price pressures are approaching the 2% target, but recent data has increased the risks that this progress could slow or even reverse. Despite these risks, Musalem expressed that he expects inflation to converge towards 2% in the medium term, emphasizing that this will allow the Fed to continue to reasonably and patiently reduce interest rates. He also noted that the risk of undesirable deterioration in the labor market has not changed or decreased, stating that economic growth continues and the job sector remains largely healthy.

Kansas Fed/Schmid: “We will wait and see about the extent of interest rate cuts.”
Kansas City Fed President Jeffrey Schmid commented that the positive effects of the Fed's interest rate cuts in the battle against inflation are beginning to be seen. However, Schmid did not provide guidance on how much further rates can be lowered, indicating that this is still uncertain. In a speech at an energy conference held by the Dallas Fed, Schmid stated that signs of labor and product markets becoming more balanced in recent months have bolstered the Fed's confidence that inflation is on track to reach the 2% target. While he believes it is time to reverse the restrictiveness of monetary policy, he noted that the amount of rate declines and where they will stabilize remains unclear.