Another Fed Hawk Official Speaks: Open to Rate Cuts but Must Proceed with Caution!

　　St. Louis Fed President Alberto Musalem said on Monday that he is open to further interest rate cuts, but the Federal Reserve must proceed cautiously, keeping rates at a sufficiently high level to continue combating inflation.

　　"Current monetary policy is somewhere between modestly restrictive and neutral. I am open to considering potential rate cuts in the future. I do think we need to proceed carefully because the space between now and the point where policy becomes overly accommodative is limited," Musalem stated during a panel discussion at Washington University.

　　Regarding inflation, Musalem noted that while long-term inflation expectations remain stable, short-term inflation expectations are still somewhat elevated. He expects inflation to remain high over the next two to three quarters.

　　On the impact of tariffs, Musalem pointed out that, so far, the effect of tariffs on inflation has been limited, even though overall inflation remains nearly one percentage point above the Fed's 2% target. He indicated that the impact of tariffs has been smaller than expected, estimating that they may account for only about 10% of current inflation.

　　Musalem emphasized the importance of combating above-target inflation, regardless of its source.

　　"It is important to restrain above-target inflation, whether it is caused by underlying tariffs or by slowing labor force growth," he said, noting that the risk of a weakening labor market has increased.

　　Musalem holds a vote on monetary policy this year. As a member of the Fed's hawkish faction, he has been warning about the rising risk of inflation throughout the year.