St. Louis Fed President Raises Inflation Concerns, Cautions Against Further Rate Cuts
Amidst discussions of higher tariffs and immigration policy changes, St. Louis Fed President Alberto Musalem has expressed concerns about inflation, urging caution in monetary policy adjustments.
In a speech at the Economic Club of New York, Musalem highlighted that rates remain "modestly restrictive" after three consecutive cuts. While inflation has declined in recent months, Musalem believes it is crucial to monitor economic conditions before making any further adjustments.
He warned that the risk of inflation stalling is now greater than a substantial weakening in the job market. In the event that higher inflation persists, he suggested that a more restrictive monetary policy stance could be necessary.
According to the January Consumer Price Index (CPI), core inflation rose by 0.4% month-over-month, the highest increase since April 2023. Year-over-year, core CPI also edged up to 3.3%, slightly higher than the 3.2% recorded in December.
Austan Goolsbee, Chicago Fed President, anticipates that the Core Personal Consumption Expenditures (PCE) Index, the Fed's preferred inflation measure, will show less of an increase next week than the CPI reading.
Despite the recent CPI data, Atlanta Federal Reserve President Raphael Bostic believes rate cuts are still possible this year. However, the hotter-than-expected inflation report raises questions about whether it represents a new trend or a temporary setback.
Markets are adjusting their expectations for Fed actions, with traders now predicting only one rate cut in 2025, later in the year. Musalem believes the US consumer remains healthy despite weaker retail sales and guidance from Walmart. However, he is monitoring potential signs of weakness and is concerned about a scenario where inflation rises while employment softens.