Key facts
- St. Louis Fed President Alberto Musalem will not prejudge the September FOMC rate decision.
- Musalem believes current economic conditions do not support a half-point rate cut.
- He stated inflation remains too high and policy is accommodative.
- Musalem emphasized that his decision will be data-dependent.
- He noted that businesses are adapting to higher import taxes, suggesting persistent price pressures.
Federal Reserve Bank of St. Louis President Alberto Musalem indicated on Thursday that higher interest rates are likely still justified by the economy's performance. Musalem stated that monetary policy is currently "accommodative" and inflation remains too high, necessitating a return to the 2% target within 18 months. He will keep his options open regarding the Federal Open Market Committee's September policy meeting, emphasizing that his decision will be dependent on incoming economic data. Musalem stated that a half-point rate cut is not supported by the current state of the economy, citing near full employment and inflation running above the Fed's 2% target. He also noted that businesses are still in the early stages of adapting to higher import taxes, suggesting that price pressures could prove more persistent than anticipated. Despite raising his sense of the risks facing the labor market, Musalem maintained that the current economic conditions do not warrant an outsized rate reduction.