St. Louis Fed President Musalem said the Federal Reserve may need to raise interest rates again to bring inflation back to its 2% target. He said monetary policy would need to tighten more if policymakers want inflation to return to target within what he called a "timely" period. In his remarks, Musalem said that if "timely" means roughly 18 months, rates may need to move higher at an appropriate point over the next six to nine months. He also said inflation remains the main problem facing the U.S. economy, even as growth stays strong and the labor market remains stable. That combination, he said, could allow the Fed to lower inflation without causing clear damage to employment. Asked whether the Oct. 27-28 policy meeting should deliver another hike, Musalem said he was keeping an open mind and had not prejudged the outcome. He added that the inflation outlook still requires policymakers to keep considering further tightening. Musalem also said that despite a notable rise in Treasury yields, financial conditions remain loose and continue to support economic growth.
St. Louis Federal Reserve President Musalem said on Oct. 9 that the Federal Reserve needs to raise interest rates again to push inflation back to its 2% target.
He said monetary policy needs to tighten further if inflation is to return to target within a "timely" period. If "timely" means about 18 months, Musalem said, rates may need to be lifted again at an appropriate time over the next six to nine months.
Musalem said inflation remains the main issue facing the U.S. economy. At the same time, he said economic growth is strong and the labor market remains stable, which could allow the Fed to bring inflation down without clearly harming employment.
Asked whether the Oct. 27-28 policy meeting should produce another rate hike, Musalem said he was keeping an open mind and had not made a judgment on the outcome. Still, he said the inflation picture requires policymakers to keep weighing additional tightening.
On market conditions, Musalem said financial conditions remain loose and continue to support growth even though U.S. Treasury yields have risen sharply. He said the increase in yields does not mean investors are losing confidence in the Fed. Instead, he said, it reflects expectations for higher real interest rates and stronger competition for capital in a strong economic environment.
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