(Bloomberg) -- Federal Reserve Bank of St. Louis President Alberto Musalem said he believes the time is approaching when it will be appropriate for the US central bank to reduce interest rates.
He said he now views inflation as back on a path toward the Fed’s 2% target and the labor market as no longer posing a risk to inflation.
“From my perspective, the risk to both sides of the mandate seem more balanced,” Musalem said in remarks Thursday in Louisville, Kentucky. “Accordingly, the time may be nearing when an adjustment to moderately restrictive policy may be appropriate as we approach future meetings.”
Musalem joins a handful of other Fed officials signaling they are close to supporting a cut when the Federal Open Market Committee meets Sept. 17-18 in Washington.
His comments follow data showing a continued decline in price pressures. Underlying US inflation eased for a fourth month on an annual basis in July, Bureau of Labor Statistics figures showed Wednesday.
Fed policymakers have pushed back on calls for aggressive actions following a weaker-than-expected jobs report in July, when hiring slowed markedly and the unemployment rate rose to its highest level in nearly three years. Investors are pricing in a quarter-point cut in September after pulling back from expectations for a half-point decrease in the immediate wake of July employment data.
‘Normalized’ Labor Market
Musalem said he sees the labor market as having “normalized” in recent weeks, but still showing signs of being “rather strong.” In that context he said he doesn’t believe the Fed has waited too long to reduce rates.
“There are risks of cutting too early or too much,” he said, and that would be “very costly.”
He said the outlook for economy was healthy, with economic growth likely to come in at around 1.5% to 2% for the remainder of the year.
“I don’t see us falling into recession over the next few quarters,” he said.
Last month policymakers kept interest rates unchanged, yet signaled they were closer to lowering borrowing costs. Chair Jerome Powell said a rate cut could be appropriate as soon as the central bank’s September meeting.
Musalem, the first Hispanic policymaker to lead a regional Fed bank, began his new role in April. His career included executive roles at Tudor Investment Corp. and the New York Fed.
(Updates with additional comments from seventh paragraph.)
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