St. Louis Fed Pres. Musalem is speaking and he says:
- Fed’s real policy rate is below the long-run neutral rate, longer-term inflation expectations are drifting up, and the labor market remains stable.
- Fed’s caution is warranted given the risk of renewed upward inflation pressures.
- Need a vigilant focus on returning inflation to the Fed’s 2% target.
- Data on the productivity effects of artificial intelligence remain inconclusive, while demand pressures are real.
- It is risky to rely on the prospect of higher productivity growth to solve today’s inflation problem.
- Prepared to adjust policy views if evidence becomes clear that stronger productivity growth is likely to ease inflation pressures.
The comments lean hawkish overall. The speaker emphasized that inflation risks remain elevated, warned against relying on uncertain AI-driven productivity gains to solve inflation, and stressed the need to stay focused on returning inflation to the Fed’s 2% target
Feds Musalem: Caution warranted in the face of upward inflation pressures
