St. Louis Fed President Musallem, a 2025 FOMC voting member, said he supported the Fed's decision to cut interest rates by 50 basis points last month, but stressed that he would prefer further rate cuts to be gradual.
Musallem said his proposed rate path was slightly above the median official figure in the Federal Open Market Committee’s Summary of Economic Projections released last month, but he would not prejudge the size or pace of future rate moves.
“Given the current state of the economy, I believe the costs of easing too much too soon are greater than the costs of easing too little too late,” Mousalem said in remarks prepared for an event organized by New York University’s Money Markets Association on Monday.
“I believe that further gradual reductions in the policy rate may be appropriate over time,” Musallem said in his remarks. “Patience has played a role in the FOMC’s pursuit of price stability and remains appropriate now, but I would not prejudge the size or timing of future policy adjustments.”
Federal Reserve officials cut their benchmark interest rate by 50 basis points last month, a move that Fed Chairman Jerome Powell said was a big step beyond expectations to protect a strong labor market.
Musallem said such a move was appropriate because inflation had fallen faster toward the central bank’s 2% target than he had expected.
He predicted that the Fed's preferred inflation measure, the personal consumption expenditures price index (PCE), will converge to 2% in the "coming quarters."
Economic projections released after the September FOMC meeting showed policymakers expected another 50 basis point rate cut this year, implying a 25 basis point cut in each of the Fed's two remaining meetings in 2024. Seven officials saw only another 25 basis point cut this year, while two others opposed further adjustments.
Salem also told the Financial Times last month that he preferred a “gradual” reduction in interest rates after September’s big cut, while adding that policymakers started their easing cycle from a “strong position”.
The U.S. labor market added 254,000 jobs last month, the most in six months, and the unemployment rate fell to 4.1%, according to data from the Bureau of Labor Statistics released last week. The better-than-expected jobs report eased concerns about the labor market, reducing pressure on the Federal Reserve and giving policymakers room to slow down rate cuts in the future.
"Both the labor market and inflation are in a good place, and I view the risks to both goals as roughly balanced around the baseline," Salem said.
Article forwarded from: Jinshi Data