St. Louis Fed president sees ‘patient’ approach to rate cuts

ST. LOUIS — Approaching his first meeting as a voting member of the Federal Reserve’s key policy body, Alberto Musalem says he’s optimistic about the economy but keeping a wary eye on inflation.

Musalem ready for first vote as president of St. Louis Federal Reserve

Alberto G. Musalem, president of the St. Louis Federal Reserve, is interviewed in his downtown office on Tuesday, Jan. 14, 2025.

Musalem took over in April as president of the St. Louis Federal Reserve Bank. That role comes with a seat on the Federal Open Market Committee, which sets the central bank’s benchmark interest rate, but only one-third of regional presidents vote each year. Musalem’s turn comes this year, beginning with a meeting Jan. 28 and 29.

Financial markets expect the Fed to hold its benchmark rate steady at that meeting, but reduce it later in the year.

In an interview this week, Musalem expressed optimism that the Fed will be able to make further rate cuts, but said that depends on making progress against inflation.

“What I would support is a patient and careful approach in reducing interest rates further,” he said. “But I think it requires inflation coming back down, so you ought to wait until you see some proof that we are getting closer to target.”

The Fed wants to hold inflation to 2%, but its preferred measure of prices is up 2.8% in the past year. It’s been stuck at that level for months after falling rapidly in 2023 and early 2024.

Musalem said the “balance of risks” has shifted since the Fed began cutting rates last September. Then, he said, unemployment was rising and officials were worried about a weaker labor market.

Now, he added, “The labor market stabilized, it remained strong … while at the same time, inflation progress has been more sideways than down.”

Musalem believes interest rates, which the Fed raised sharply in 2022 and 2023 to fight inflation, remain above what economists call a “neutral” level. “So, I think we have moderately restrictive monetary policy, which is appropriate given where inflation is and where the labor market is,” he said.

Going into a policy meeting, Musalem consults a variety of statistical models, market indicators and business surveys. He also relies heavily on his bank’s own economists and on talks with people within his district.

Lately, he said, regional business leaders have been optimistic about hiring and less concerned about rising labor costs. They are worried about other costs, including insurance.

“I weigh those conversations pretty strongly,” he said. “The impressionistic information given in those conversations is equally as valuable as the output of some sophisticated macroeconomic model.”

Musalem, 56, was born in Colombia and grew up in Argentina, Brazil and Maryland. He ran a quantitative investment firm and gained extensive policy experience at the International Monetary Fund and the New York Fed. He’d never been to St. Louis before landing his current job.

“I knew there was an arch but I didn’t know much more than that,” he said. “I’ve been pleasantly surprised by the vibrant business community here, and by the business and community leaders working together to continue to develop the city and its surroundings.”

He leads an institution with 1,500 employees who regulate banks, perform community development functions and handle transactions for the U.S. Treasury. The St. Louis Fed’s district covers part or all of seven Midwestern and Southern states.

Musalem said he’s been impressed by how globally connected the region is. “When I’m traveling through the district meeting with all these business people, you would have thought I’d be learning about that city or that part of the district, but in fact sometimes we’re having conversations about things happening in China because these are companies that have global operations.”

While his votes at the Federal Open Market Committee may attract media attention, Musalem said he won’t approach the meetings any differently than he did last year. “The sense of responsibility to the people we serve is exactly the same,” he said. “I guess there’s a little more attention on you in the press, maybe, but inside the four walls we work just as hard whether you’re a voter or a non-voter.”

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Musalem ready for first vote as president of St. Louis Federal Reserve

Alberto G. Musalem, president of the St. Louis Federal Reserve, is interviewed in his downtown office on Tuesday, Jan. 14, 2025.

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