(Bloomberg) -- Federal Reserve Bank of St. Louis President Alberto Musalem said the central bank is within sight of its inflation and employment goals, but he underscored officials should keep policy “moderately restrictive” while price growth remains above the Fed’s 2% target.
“Monetary policy is well positioned to return inflation to target and support maximum employment through gradual adjustments of the policy rate toward a neutral level over time, provided inflation continues to fall toward 2%,” Musalem said in prepared remarks Wednesday for the Economic Club of Memphis. A neutral policy rate is one that neither promotes nor inhibits economic growth.
He added the central bank can “judiciously and patiently” evaluate incoming economic data when considering further rate cuts.
Fed officials lowered interest rates by a quarter percentage point last week, the second consecutive cut. Musalem said recent rate reductions “lessened but did not eliminate policy restraint.”
“In my baseline scenario, based on current information, I expect inflation to converge toward 2% over the medium term,” he said, “with a labor market that cools further and remains in the range of full employment, accompanied by moderating compensation growth.” He said that baseline reflects “an expectation that monetary policy remains appropriately restrictive while inflation remains above 2%.”
Still, Musalem said that recent information suggests that the risk inflation could stop its downward path, or even move higher, has risen. Concerns of labor market deterioration, meanwhile, have remained unchanged or possibly fallen.
Data out earlier Wednesday showed a measure of underlying US inflation remained firm in October. The so-called core consumer price index — which excludes food and energy costs — increased 0.3% for a third month. The overall CPI, which includes food and energy, advanced 2.6% from a year earlier, marking the first acceleration on an annual basis since March. Musalem said the data indicate core inflation “remains elevated.”
Following the data’s release, which was generally in line with economists’ estimates, investors raised their bets Fed officials will again cut interest rates by a quarter percentage point at their next meeting in December.
Musalem said the labor market is close to full employment, with low rates of joblessness and layoffs. He described it as having cooled, but showing few signs of outright deterioration.
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