Fed's Musalem: Further Rate Hikes Needed to Curb Inflation
St. Louis Fed President Musalem says the U.S. central bank needs to raise interest rates again to bring inflation back to 2% in a timely manner, possibly within 18 months. He notes financial conditions remain loose despite higher Treasury yields.
The president of the Federal Reserve Bank of St. Louis, Alberto Musalem, said the U.S. central bank needs to raise interest rates again to bring inflation back to its 2 per cent target in a timely manner.
Speaking on Wednesday, Musalem said if 'timely' means about 18 months, then further rate increases should occur at an appropriate time within the next six to nine months. However, he did not directly answer whether the Fed should raise rates at its meeting later this month.
Markets widely expect the Federal Open Market Committee to keep rates unchanged at its October meeting. Musalem does not have a vote on the committee this year.
Musalem also said that despite a significant rise in Treasury yields, financial conditions remain loose and continue to support economic growth. He said the rise in bond yields does not mean investors are losing confidence in the Fed; rather, expectations of higher real interest rates, driven by a strong economy and intense capital competition, are pushing yields up.
He added that strong investment in the technology sector and the government's large borrowing needs also support high bond yields.