St. Louis Fed President: The Fed may need to slow its pace of rate cuts

St. Louis Fed President Alberto Musalem said policy makers may need to slow the pace of rate cuts as inflation remains above target and concerns about the labor market ease. Musalem said that while further gradual rate cuts may still be needed in the long run, caution should be taken now, as the risk of cutting too fast is greater than the risk of cutting too little. “Flexibility in policy is particularly important, and perhaps it is time to consider slowing the pace of rate cuts, or even pausing them, to take a more careful look at the current economic environment, the latest data, and the future economic outlook,” Musalem said Wednesday. Musalem also reiterated that the Fed is close to achieving its goals of maximum employment and price stability, and that monetary policy is in good shape. Since September, the Fed has cut rates by 0.75 percentage point. But some officials have called for a more cautious approach to rate cuts, given the volatility of inflation data and the strength of the labor market. The Fed’s next meeting is scheduled for Dec. 17-18. Musalem said he expects inflation to gradually move toward the Fed’s 2% target over the next two years. But he warned that the data released since September indicated that the progress in prices may stall or even reverse. Moreover, he noted that policy makers need to be cautious because the exact level of the “neutral rate” — the rate that neither stimulates nor restrains economic growth — is unclear. He also mentioned that the question of whether productivity growth can be sustained is unknown. Before the next meeting, policy makers will have more economic data to consider, including a fresh employment report due out Friday.