St. Louis Fed President Mussallem suggests that the Federal Reserve should adopt a gradual approach to cutting interest rates, highlighting the potential positive impact on the U.S. economy.
According to BlockBeats, citing the Financial Times on September 28, St. Louis Fed President Mussallem emphasized the need for the Federal Reserve to slow down the pace of interest rate cuts after a significant 50 basis point reduction earlier this month. Mussallem believes that a gradual easing of financial conditions could positively influence the U.S. economy by boosting demand and potentially extending the timeline for reducing inflation to the Fed’s 2% target.
“For me, it’s about taking the brakes off at this stage. It’s about gradually reducing policy restrictions,” Mussallem stated, signaling a shift towards a more measured approach. He is one of the officials anticipating further rate cuts of more than 25 basis points through the rest of the year, as outlined in the forecasts from the latest Fed meeting.
Mussallem acknowledged that while the labor market has cooled in recent months, the overall economic outlook remains strong, with low unemployment and solid business activity. Despite this, he noted that potential risks might necessitate quicker rate cuts if the economy or labor market weakens more than expected.
“The economy may be weaker than I currently anticipate, and the labor market may be weaker than I currently anticipate,” Mussallem warned. “If that is the case, then an accelerated pace of interest rate cuts may be appropriate.”
Mussallem’s comments underscore the Fed’s cautious approach as it balances supporting economic growth while continuing its fight against inflation.
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