Fed Official: Interest Rates to Remain at Current Levels for Some Time

Alberto Musalem, president of the U.S. Federal Reserve Bank of St. Louis, has indicated that the current benchmark interest rate level is likely to remain for a significant period. Speaking at an event at the American Enterprise Institute (AEI) in Washington D.C. on Thursday, Musalem stated that "the current policy is well-positioned to respond to risks to both objectives of the dual mandate." The Fed's dual mandate refers to price stability and full employment, and maintaining a balance between these two goals is a core principle of monetary policy.

He diagnosed that considerable uncertainty exists regarding the economic outlook. He pointed out that Middle East conflicts and uncertain tariff policies could burden consumer and corporate spending in the first half of the year, and that rising prices for fuel, aluminum, and fertilizer could also exert additional pressure on the economy.

Musalem emphasized that supply shocks should not be dismissed as merely temporary phenomena. He said, "Supply shocks can potentially have a more persistent effect on inflation and inflation expectations," explaining that it is difficult to discern whether the rise in core inflation stems from temporary supply factors or persistent demand pressures. Core inflation, which excludes the prices of energy and food, is used to gauge underlying inflation trends. He added, "History suggests caution is warranted, especially when core inflation continues to run above target."

He further stated that he would support an interest rate hike if core inflation or medium-to-long-term inflation expectations continue to rise and deviate from the 2% target.