By Jonnelle Marte | Bloomberg
Federal Reserve Bank of St. Louis President Alberto Musalem said there is much uncertainty over the future path for the economy and monetary policy, but he sees risks rising more for inflation than for employment.
“Inflation is running meaningfully above our target of 2%,” Musalem said Wednesday during an event in Fairhope, Alabama, organized by the Mississippi Bankers Association. “We have risks both on the employment side and on the inflation side. In my understanding, the risks have been shifting towards more risk on the inflation side than the employment side.”
Musalem said the Fed’s benchmark policy rate is either at the neutral level that neither boosts nor slows the economy, but it might also be slightly accommodative.
“There are very plausible scenarios under which the economy would require us to keep the policy rate at its current level for some time,” he said.
He also noted he sees scenarios under which officials may need to lower rates further or raise rates.
“So a lot of uncertainty right now, and it’s important to see how things settle,” Musalem said.
Policymakers broadly supported the decision to hold interest rates steady last month, but three officials dissented against wording in the post-meeting statement that suggested the Fed would eventually resume rate reductions. Those officials said rising oil prices and broader uncertainty over the economic effects of the war in Iran made it more appropriate to signal the next rate move could be either a cut or a hike.
