Inflation Remains Key Concern for Policy Decisions
Speaking on Friday, Fed official Musalem stated that sustained inflation above the central bank's target has made him reluctant to endorse additional rate cuts. He backed the Fed's decision this week to leave rates unchanged.
Current Rate Level Seen as Appropriate
Musalem noted that the current federal funds rate range of 3.5% to 3.75% is no longer sufficiently restrictive to weigh heavily on economic activity, and that the stance of policy has become more neutral.
Rate Cuts Could Backfire
He warned that cutting rates to relieve labor market pressures might actually prove counterproductive by reigniting inflation concerns and pushing up long-term interest rates, which are key to mortgage and business borrowing costs.
- Inflation remains the central focus of policymaker attention
- Current rates seen as adequate for managing economic fluctuations
- Excessive easing could create new uncertainties in financial markets