St. Louis Fed President Alberto Musalem said additional interest-rate increases will be necessary, and soon, to bring inflation back to the central bank's target. Speaking Friday in remarks prepared for an event organized by the Shadow Open Market Committee in New York, Musalem argued that incremental adjustments made earlier are usually less disruptive than larger and abrupt actions taken later.
Fed officials voted 10-2 earlier this week to leave interest rates steady, taking time to evaluate the economy after raising their benchmark rate in September to address elevated inflation. Fed Chairman Kevin Warsh said the data officials will review before their December policy meeting should help them decide where rates need to be to return inflation to the 2% target in a timely manner. Musalem, who does not vote on policy decisions this year, said interest rates remain accommodative after the September hike and that inflation risks are skewed toward persistent above-target inflation.
He said financial conditions have tightened recently, partly because of the Fed's action, though the shift was less dramatic than after other major events. Inflation expectations have remained anchored so far. The Fed's preferred gauge, the personal consumption expenditures price index, rose 3.6% in September from a year earlier, according to data released Thursday by the Bureau of Economic Analysis.
In early October, Musalem said interest rates should rise over the next six to nine months to help tame high inflation. Investors are betting the Fed is likely to raise rates in December and March, according to pricing in futures contracts.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing