St. Louis Fed president praises progress on inflation but isn't ready for interest rate cuts

ST. LOUIS — Despite new data suggesting cooling inflation, the St. Louis Fed president signaled Thursday that he wants stronger evidence of sustained improvement before interest rates are lowered.

St. Louis Fed CEO Alberto Musalem reiterated his support for the Federal Open Market Committee’s stance that it won’t cut interest rates until there is greater confidence that inflation is moving toward 2%.

“I think that policy posture is a good one,” Musalem said told business leaders at an event in Little Rock, Arkansas.

Musalem serves on the FOMC, the central bank’s policymaking body, but won’t become a voting member until 2025.

His comments came hours after the release of the monthly consumer price index, a key measure of inflation. The June data showed a year-over-year rise of just 3%, which, like the data for May, marked an improvement compared to the first four months of the year.

“I think when you add it all together, you have continued progress to where we want to be,” Musalem said. “But I think it would be prudent to look forward to the next 12 months, and think of what that environment is going to look like, and what inflation is going to look like.”

Consumer Price Index, year-over-year percent change

Musalem added that the U.S. unemployment rate — rising, but still historically low at 4.1% — suggests that the labor market is probably not contributing as much to inflation as it did a year or two ago.

Musalem was asked to comment on pandemic-era monetary policy, and imagine how history may view the timing of the Fed’s rate hikes in the wake of COVID-19. (His predecessor, Jim Bullard, was a proponent of aggressive increases to tame inflation at that time.)

In hindsight, earlier rate hikes might have “shaved off” the peak of inflation, Musalem said. But inflation was unavoidable, because of the tremendous economic upheaval of that time, he said.

Musalem took on his new role in April. Since then, he said he has observed companies in the Eighth District struggling with costs for supplies, labor and insurance. Interest rates are “straining some balance sheets.”

Still, labor conditions are improving: Companies seem to have less difficulty filling vacancies, and turnover has declined.

The labor market, he added, may see some rebalancing as generative AI takes on roles in hospitals, ag companies, manufacturers and the financial sector. There is evidence of increased productivity already in the tech sector, Musalem said. Some studies show dramatic increases in productivity for workers who develop software and code.

Still, he added, “it’s one thing to measure productivity gains in one sector … Once you look at the whole economy, those productivity gains are much, much more modest.”

He said he expects AI will lead to somewhat of a disconnect between the skills people have and the skills demanded by the jobs market.

Still, he added, “I’m confident that over time people will re-skill, and I’m confident that over time it’s going to not negatively impact employment.”

Take a look back at June 2024

St. Louis Post-Dispatch photographers captured June 2024 in hundreds of images. Here are just some of those photos. Edited by Jenna Jones.

___

(c)2024 the St. Louis Post-Dispatch

Visit the St. Louis Post-Dispatch at www.stltoday.com

Distributed by Tribune Content Agency, LLC.