Fed’s Musalem: Important for Fed to be cautious right now

Federal Reserve (Fed) Bank of St. Louis President Alberto Musalem spoke at the Institute of International Finance Annual Membership Meeting in Washington, DC. He said that he could support a path with another rate cut if more risks to jobs emerge and inflation is contained, and that the Fed should not be on a preset course and follow a balanced approach.

Key Comments

I could support a path with another cut if more risks to jobs emerge and inflation contained.

Fed should not be on preset course and followed balanced approach.

Sees limited space before rate cuts would make policy accomodative.

Important for Fed to be cautious right now

Doesn't make decisions on one data point amid broader shutdown.

Important for the Fed to go meeting by meeting on policy deliberations.

We are in a particularly uncertain moment.

It's premature what to say comes with FOMC meetings after October.

Tariff impacts still flowing into economy.

Tariffs will work through economy into middle of next year.

Retailers feeling increased pressure to pass on tariffs.

Consumer-facing firms facing more trouble passing through tariffs.

Purchasing power 'still an issue' for many Americans.

Inflation is still a very big thing for consumers.

It is really important for Fed to get inflation back to 2%.

Some are saying non-interest rate related costs matter more right now.

Tariffs don't appear to be passing through to services.

Service inflation has been at high level, needs more work to lower.

Totally commmitted to a target of 2%, believes Fed supports same.

By second half of 2026 will move back toward 2% inflation, but needs policy to lean against inflation.

Business contacts say job market has cooled.

Labor market is not a source of inflation.

Broadly speaking, job market is around full employment right now.

Job gains have been affected by immigration changes.

Sees 30k-80k job market breakeven rate.

We could see negative payroll prints but unemployment may not move.

Is not seeing an increase in layoffs

We are not in imminent problem for job market but risks have increased.

Monetary policy is somewhere been restrictive and neutral.

Financial conditions are accomodative right now.

Equity prices are not a key part of thinking about the economy.

You always have to worry about credit market risks.

Some recent stress in credit markets not tied to macro environment.

Contacts say credit conditions are really good right now.

Independence of monetary policy is critical but requires transparency and accountability.

Consumption from all income groups has been strong, wealthy benefiting from wealth effects.

Low probability next Fed leader will not be qualified."