Fed/Musalem: I Expect More Interest Rate Cuts

Foreks - St. Louis Fed President Alberto Musalem stated that he expects the U.S. central bank to continue lowering interest rates, but warned that the pace of future actions has become less clear.

In his speech at the Bloomberg monetary policy conference, Musalem noted that inflation will continue to decline toward the Fed's 2% target, and said, "Over time, an additional easing of moderately restrictive policy will be appropriate."

Musalem stated, "Along this fundamental path, it seems important to maintain policy optionality, and it may be time to consider slowing down or pausing the pace of interest rate cuts to carefully assess the current economic environment, incoming information, and the evolving outlook."

In his remarks, Musalem mentioned that monetary policy is "well positioned" to address the outlook, and given that core price pressures remain above the Fed's 2% inflation target, the current restrictive stance is appropriate. Musalem also said, "In the current environment, easing policy too early and too much poses a greater risk than easing too little or too slowly."

Musalem indicated that it could take two more years for inflation to reach the central bank's target and suggested that a patient monetary policy stance is appropriate given the current inflation level in a labor market consistent with a "strong" economy and full employment.

He added that he expects growth to moderate towards the economy's long-term potential due to a further cooling of the labor market and modest wage increases, saying, "While the unemployment rate gradually rises toward natural rate estimates, I expect the labor market to remain consistent with full employment."