St. Louis Fed President Alberto Musalem said higher interest rates will be needed in the near future to rein in inflation. His remarks come days after the Fed held rates steady, and futures traders now price a likely December hike.
St. Louis Federal Reserve President Alberto Musalem said Friday that higher interest rates will be needed in the near future to rein in inflation. He spoke in prepared remarks for the Shadow Open Market Committee, a gathering of economists focused on the central bank.
According to CNBC, Musalem said: "I judge that additional firming of monetary policy will be necessary, and soon." The comments are the first insight into what Fed leaders see next after Wednesday's decision to hold rates steady.
Markets price a December rate hike
The remarks also bolster the view among investors that the Fed will return to a rate hike at its next meeting in December. Fed funds futures traders are pricing in a roughly 76% likelihood of a quarter-point increase at that gathering, according to CME's FedWatch tool.
Musalem argued that smaller steps taken sooner are usually less disruptive than larger and abrupt actions taken later. Moving sooner while inflation expectations are anchored, he said, has a better chance of succeeding without adverse impact on the labor market or economic growth.
Strong economy, but inflation stays too high
Musalem spoke positively about the U.S. economy and pointed to Thursday's GDP data, which showed growth of 3.4%, stronger than expected. He said the artificial-intelligence buildout and accommodative financial conditions are among the factors boosting the economy.
He described the labor market as stable and balanced, noting that the unemployment rate of 4.2% sits at the median of long-run projections by Federal Open Market Committee participants. Musalem is not a voting FOMC member this year and isn't expected to have a vote until 2028.
However, he warned that inflation is too high, citing the personal consumption expenditures price index released Thursday, which showed annual inflation above 3%. He said inflation will likely remain above the Fed's 2% target unless the central bank adjusts policy.
Source: CNBC
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