Federal Reserve (Fed) Bank of St. Louis President Alberto Musalem noted on Tuesday that inflation progress may be a longer, slower process than many market participants currently hope. St. Lousi Fed President noted specifically that the labor market remains particularly tight, and that it could take entire months or quarters before policies drag inflation back to convicing Fed target levels.
Key highlights
I need to observe a period of favorable inflation, moderating demand and expanding supply before he will have confidence for an interest rate cut.
The retail sales data for May suggests aggregate demand is growing at a moderate pace so far in Q2.
I will remain vigilant until inflation is clearly and convincingly is well on its way back to 2%.
If inflation becomes stuck meaningfully above 2% or moves higher, I would support additional policy tightening.
These conditions could take months and more likely quarters to play out.
I expect some further cooling in labor market in coming months.
The labor market no longer seems overheated, but remains tight.
I expect aggregate consumption to moderate in coming quarters without stalling and then return to or slightly exceed trend by 2026.
Financial conditions feel accommodative in some parts of the economy, and restrictive in others.
It is possible that monetary policy transmission may be slower this cycle.
Personal Consumption Expenditures Price Index should show welcome downshift of inflation in May.
The current monetary policy stance seems restrictive, but there is some uncertainty about to what degree.
Continued high employment and wage growth should moderate impact of easing labor market conditions on aggregate demand.
There are potential early signs of continued progress on inflation.
Further Musalem
The Fed targets consumer prices, not housing prices.
Artificial intelligence, if adopted widely, will have material productivity impacts over the long term.
I really welcome news that the labor market has been rebalancing.
I am watching the labor market for signs of any unexpected deterioration, I am not seeing those signs at the moment.
