Earlier this week, St. Louis Federal Reserve Bank President Alberto Musalem advocated further interest rate cuts as the economy continues to grow at a steady pace, while noting that it would be appropriate for the central bank to be cautious and not overly easing monetary policy.
“A gradual rate cut would be appropriate in the near term,” he said at a meeting of the New York University Money Traders Association, stressing that “patience” has paid off for the Fed. He also would not make any pre-judgments about the size or timing of future policy adjustments.
The government also released data showing unexpectedly strong labor market conditions, casting doubt on widespread concerns that the labor sector is weakening.
In September, the Fed cut its interest rate target by half a percentage point, to a range of 4.75% to 5%, as inflation pressures eased significantly amid growing signs of a weakening labor market.
The Fed is also expected to cut interest rates by another half a percentage point later this year. However, September's hiring strength has raised doubts about how aggressively the Fed will need to cut rates.
Musalem, who took office earlier this year and has no voting rights on the Federal Open Market Committee (FOMC), supported the Fed's recent interest rate decision. He also expressed his view that interest rates will be "a little higher than average."
Fed officials forecast the federal funds rate will be at 4.4% by the end of this year and at 3.4% by the end of 2025, based on projections released at the September policy meeting.
Musalem still cautioned against cutting interest rates, even as he predicted inflation would return to 2% within the next 12 months and saw the current labor market conditions as consistent with a strong economy.
Sticky or rising inflation would threaten the Fed’s credibility and hurt future employment and economic activity, so easing too much too soon would be more costly than easing too little too late.
