St. Louis Fed President Alberto Musalem said he sees little justification for further near-term easing, arguing that the Fed’s policy rate is already “right around neutral.” Excluding inflation, Musalem estimates the real policy rate at roughly 1%, and warned it would be “inadvisable” to push policy into an accommodative stance at this stage.
Musalem said he supported the December rate cut due to a slightly elevated risk to the labor market alongside moderating concerns about accelerating inflation. However, he emphasized that additional easing would only be warranted if the labor market weakens more than expected and inflation falls below 2%, allowing policy to be eased without becoming stimulative.
Looking ahead, Musalem expects the US economy to grow at or above potential in 2026, supported by “robust tailwinds” from fiscal stimulus and the lagged effects of prior rate cuts. He said the labor market as cooling in an orderly fashion and remaining resilient, with unemployment near its neutral level and job growth around breakeven rates of roughly 30k to 80k per month.
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