(Bloomberg) -- Federal Reserve Bank of St. Louis President Alberto Musalem said he supported the US central bank’s decision last month to lower interest rates by a half point, but emphasized he’d prefer further reductions to be gradual.
Musalem said he penciled in a rate path that was slightly higher than the median official in the Federal Open Market Committee’s Summary of Economic Projections released last month, but he would not prejudge the scale or pace of future rate moves.
“Given where the economy is today, I view the costs of easing too much too soon as greater than the costs of easing too little too late,” Musalem said Monday in remarks prepared for an event organized by the Money Marketeers of New York University Inc.
“I believe that further gradual reductions in the policy rate will likely be appropriate over time,” Musalem said in his remarks. “Patience has served the FOMC well in its pursuit of price stability and remains appropriate now, but I will not prejudge the size or timing of future adjustments to policy.”
Fed officials lowered their benchmark rate by a half point last month, a larger-than-anticipated move that Fed Chair Jerome Powell said was meant to protect a strong labor market.
Musalem said such a move was appropriate because inflation was falling more quickly toward the central bank’s 2% goal than he had anticipated. He forecasts the Fed’s preferred measure of inflation — the personal consumption expenditures price index — will converge to 2% over the “next few quarters.”
Economic projections released after the September meeting showed the median policymaker penciled in another half point of rate reductions this year, implying a quarter-point cut at each of the central bank’s two remaining 2024 meetings. Seven officials saw only one more quarter-point cut for the year and two opposed any further adjustments.
Labor Market
The St. Louis Fed chief said in an interview with the Financial Times last month that he preferred to lower interest rates “gradually” following the outsize move in September, adding that policymakers started their easing cycle from a “position of strength.”
The US labor market added 254,000 jobs last month, the most in six months, and the unemployment rate ticked down to 4.1%, according to Bureau of Labor Statistics’ figures released last week. The stronger-than-expected jobs report eased concerns about the labor market, taking some pressure off the Fed and giving policymakers room to cut rates at a slower pace going forward.
“Both the labor market and inflation are in a good place, and I see the risks to the two objectives as roughly balanced around the baseline,” he said. Musalem added during a question-and-answer session after his speech that the strong jobs report did not change his view on where rates should be headed.
“What I saw in the labor market report didn’t lead me to think that I should revise my baseline by very much,” Musalem said. “The path I penciled in is probably still appropriate.”
(Updates starting in 10th paragraph with comments from question-and-answer sesssion)
©2024 Bloomberg L.P.