St. Louis Fed President Musalem suggests potential September rate hike

Alberto Musalem, President of the Federal Reserve Bank of St. Louis, suggested that interest rate hikes could be necessary in September if inflation remains elevated. Musalem noted that underlying inflation, which he estimates is running between 2.5% and 3%, remains too high relative to the central bank's 2% target.

During an interview, Musalem argued that implementing gradual rate increases now could prevent the need for more aggressive monetary tightening in the future. While acknowledging unexpected weakness in the labor market, he observed stability in employment alongside reduced inflationary pressures in that sector. He also highlighted that recovering productivity levels tend to raise real interest rates and warned that potential supply shocks, such as a ‘super El Niño’, could pose further risks to price stability.