In his speech on Wednesday at the Economic Club of Memphis, St. Louis Fed President Alberto Musalem emphasized that the Federal Reserve continues to prioritize its dual goals of inflation and employment. The decision on whether to further cut interest rates will be based on future economic data. He noted that as long as inflation continues to fall towards the Fed's 2% target, the Fed is committed to achieving a neutral policy rate to stabilize inflation while supporting employment.
Musalem stated that the Federal Reserve will maintain "moderate restriction" in its monetary policy to address the current inflation levels, which remain above target. He added that future interest rate cut decisions will be cautious, with the Fed having enough patience to observe the upcoming economic data and assess its impact on monetary policy.
Regarding the market's main concern, "Will Trump's reelection affect the decision to cut rates?" Musalem clearly stated that it is currently not appropriate to incorporate the impact of Trump's administration into the December policy expectations. Last week, the Federal Reserve lowered interest rates by 0.25 percentage points, marking the second consecutive rate cut. Musalem explained that these rate cuts are merely to provide some support to the economy, yet still remain moderately restrictive to control inflation risks.
He stated that, in the baseline scenario, the inflation rate is expected to trend towards 2% in the medium term, while the labor market will cool but remain fully employed. Although wage growth is slowing, the employment market remains robust.
Inflation data released earlier on Wednesday showed that October's core CPI (excluding food and energy) rose 0.3% for the third consecutive month, indicating core inflation remains at a high level. Overall CPI increased by 2.6% year-over-year, the largest rise since March. Musalem stated that this data suggests increased resistance to falling inflation and a rise in the risk of inflation resurgence.
Regarding the labor market, Musalem noted that the labor market is close to full employment, with low levels of unemployment and layoffs. He stated that although the labor market has cooled, there are no significant signs of deterioration.
Musalem's remarks stressed that the Federal Reserve will closely monitor future economic data in making subsequent policy decisions and continue to act cautiously based on changes in data. Although the market expects that the Fed might cut rates by 25 basis points again in December, the actual decision will be entirely dependent on future economic indicators.
