Key facts
- St. Louis Fed President Alberto Musalem said further rate hikes are likely needed to curb inflation.
- Musalem believes policy restraint is crucial to reach the Fed's 2% inflation target in about 18 months.
- He noted that underlying inflation is running about 1 percentage point above the Fed's target and is moving in the wrong direction.
- Musalem views the current 3.75%-4.00% policy rate as accommodative.
- He stated the labor market is not a source of inflation and does not need to be cooled.
- Firms are planning to raise selling prices due to higher non-labor input costs.
St. Louis Fed President Alberto Musalem said on Monday that the Federal Reserve will likely need to hike interest rates further to lower inflation, driven by both strong demand and persistent supply-side factors. He emphasized that policy restraint is crucial to achieve the Fed's 2% inflation target within approximately 18 months.
Musalem noted that underlying inflation, even excluding oil and other supply shocks, is running about a percentage point above the Fed's target and is moving in the wrong direction. He views the current policy rate of 3.75%-4.00% as still accommodative and believes that earlier, incremental policy firming is preferable to later, larger actions. He also stated that the labor market is not contributing to inflation and does not need to be cooled.
Firms in Musalem's district are reporting higher non-labor input costs, including fuel, raw materials, transportation, and insurance, and are planning to increase selling prices, indicating that inflation remains the principal problem. The Federal Reserve last raised interest rates by 0.25% and removed a reference in its policy statement attributing recent inflation partly to supply shocks.