Key facts
- Musalem sees an imminent need to raise interest rates.
- He believes additional monetary policy firming is necessary soon.
- Inflation remains too high relative to the 2% target.
- Monetary policy is not currently positioned to lower inflation.
- Financial conditions remain accommodative, though have tightened recently.
St. Louis Federal Reserve President Alberto Musalem said on Friday that further monetary policy tightening is necessary soon to combat persistently high inflation. He believes that smaller, earlier rate increases are less disruptive than larger, later ones, especially while inflation expectations remain anchored. Musalem noted that current financial conditions are not sufficiently restrictive to bring inflation back to the Fed's 2% target. The Federal Reserve left its policy rate unchanged in the 3.75%-4.00% range this week, though two policymakers dissented in favor of a hike. Fed Chairman Kevin Warsh acknowledged that price stability had not yet been achieved.