Fed’s Musallem Advocates Gradual Interest Rate Cuts to Stimulate US Economy

According to a recent report by the Financial Times, St. Louis Fed President Musallem highlighted the need for the Federal Reserve to return to a strategy of gradual interest rate cuts after an unusually large reduction of 50 basis points earlier this month. Musallem indicated that a more relaxed financial climate could facilitate a “very positive” response from the US economy, potentially boosting demand and prolonging the Fed’s timeline to achieve a 2% inflation target. Musallem stated, “At this stage, it’s about easing the brakes and gradually reducing policy restrictions.” Projections from the latest Fed meeting show that he supports additional cuts exceeding 25 basis points within the year. While he noted a recent cooling in the labor market, Musallem expressed optimism, citing low unemployment and robust economic fundamentals. He asserted that the business sector remains resilient with solid overall activity. Nevertheless, he acknowledged potential risks that could necessitate swifter rate reductions, saying, “The economy might be weaker than expected, and the labor market could also underperform, which would warrant an accelerated pace of interest rate cuts.”