Musalem stresses caution on policy easing amid rising inflation expectations and below-neutral real rates.
St. Louis Federal Reserve President Alberto Musalem signaled caution on monetary policy easing, citing upward inflation pressures and a real policy rate below the long-run neutral level. Longer-term inflation expectations are drifting higher, while the labor market remains stable, reinforcing the need for vigilance to return inflation to the Fed’s 2% target.
Musalem noted that demand pressures are tangible, while evidence on AI-driven productivity gains remains inconclusive. He warned against relying on uncertain productivity improvements to ease inflation, though he left room to adjust policy if clear evidence of stronger productivity growth emerges. The comments underscore a hawkish stance, prioritizing inflation control over near-term easing.
The remarks highlight concerns about elevated inflation risks and the Fed’s reluctance to ease policy prematurely. Market reactions may reflect heightened expectations for prolonged restrictive rates.