Alberto Musalem, the St. Louis Federal Reserve Bank President, said at Bloomberg's The Future of Fixed Income event in New York on Thursday that US interest rates may need to rise over the next six to nine months to bring inflation under control.
Musalem said his usual monetary-policy planning window runs from 18 months to two years. “If the timing is 18 months, that suggests rates ought to be going up further in an appropriate period of time, in the next six to nine months,” he said.
Inflation remains elevated because of persistent demand pressures and negative supply shocks, Musalem said. He described it as the primary concern for the US economy and said the Federal Reserve must return inflation to its 2% target without delay.
“I think that the general direction of inflation requires us to be thinking of further policy firming here,” Musalem said.
The Fed raised its benchmark interest rate by a quarter percentage point in September, its first increase since July 2023. The move took the federal funds rate to a target range of 3.75% to 4%. The decision was unanimous, by 12 to 0.
Kevin Warsh, the Federal Reserve Chair, said inflation had been ‘too high... for too long’. Projections issued after the September meeting showed officials did not expect inflation to return to the 2% target until 2029. Sixteen of 18 participants at that meeting projected at least one further rate increase.
Traders put better-than-80% probability on the Fed leaving rates unchanged at its October meeting. They assigned nearly 70% odds to a second rate increase arriving in December.
Musalem said he had not prejudged the outcome of the Fed’s 27-28 October meeting.
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