St. Louis Fed President Alberto Musalem said overnight that this year’s interest-rate cuts have been “appropriate”, but warned that policymakers must remain cautious about inflation risks. Speaking at an event, he emphasized the need to “lean against above-target inflation while continuing to provide some insurance to the employment sector,” suggesting that while the easing cycle has helped stabilize growth, vigilance is still warranted as inflation remains above 2%.
Musalem described current monetary settings as “somewhere between modestly restrictive and neutral,” noting that financial conditions are now close to neutral and “rather supportive of economic activity and the labor market.”
On inflation drivers, Musalem highlighted U.S. trade tariffs as a lingering source of upward price pressure but said their impact has so far been blunted by corporate pricing restraint. He expects this effect to dissipate in the second half of 2026, paving the way for inflation to resume its gradual return toward the 2% target.
