St. Louis Fed’s Musalem Backs Current Monetary Policy Ahead September Meeting

St. Louis Federal Reserve President Alberto Musalem supports the Fed's current monetary policy stance, describing the modestly restrictive interest rate setting as appropriate given the current full-employment labor market and core inflation slightly above the 2% target. He emphasized the importance of a balanced approach to monetary policy, warning against excessive easing that could exacerbate inflation or overly focusing on inflation at the expense of labor market support. Musalem noted recent downward revisions in employment data have increased downside risks to the labor market, though overall the labor market remains solid. He anticipates the impact of President Donald Trump's tariffs on inflation will fade after two to three quarters, with inflation expected to converge toward 2% by the second half of 2026. Musalem also highlighted market sensitivities, such as rises in the term premium and inflation expectations, and called for data-driven decisions ahead of the Federal Open Market Committee meeting in mid-September. While markets widely expect a rate cut, Musalem remains cautious and continues to evaluate evolving economic data before endorsing any policy changes.