Fed/Musalem: Keeping My Options Open for the December Meeting

Forex - St. Louis Fed President Alberto Musalem stated that he expects the Fed to continue lowering interest rates but is not ready to express what should happen at the policy meeting at the end of this month. Musalem, in his remarks at the Bloomberg monetary policy conference, indicated that it is likely inflation will continue to fall over time toward the Fed's 2% target, stating, "A moderate easing of the somewhat restrictive policy toward neutral will be appropriate over time. Along this fundamental path, it seems important to maintain policy optionality, and it may be time to consider slowing or pausing the pace of rate cuts to carefully assess the current economic environment, incoming data, and the evolving outlook."

Musalem mentioned that he needs to see more data before solidifying his views on what is needed at the meeting, adding, "I am keeping all my options open." He emphasized that monetary policy is "well-positioned" to address the economic outlook and that the current restrictive stance is appropriate given that core price pressures remain above the Fed's 2% inflation target. Musalem remarked, "In the current environment, easing policy too early and too much poses a greater risk than easing too little or too slowly."

Musalem noted that it could take another two years for inflation to reach the central bank's target, adding that a patient monetary policy stance is appropriate considering the current level of inflation in line with a "strong" economy and a labor market that is consistent with full employment. He stated that he expects growth to moderate toward the economy’s long-term potential due to a further cooling of the labor market and moderate wage growth. "As the unemployment rate gradually rises towards natural rate estimates, I expect the labor market to remain consistent with full employment," he concluded.