St. Louis Fed President: Current interest rates are at an appropriate level, policy should not excessively favor employment or inflation.

Federal Reserve Bank of St. Louis President, Alberto Musalem, stated that the current interest rate level is very suitable for the current economic environment. Musalem said at an event at the Peterson Institute for International Economics in Washington on Wednesday: "The slightly tight policy rate setting is consistent with today's fully employed labor market and a core inflation rate that is still about one percentage point above the Fed's 2% target." Musalem emphasized the importance of taking a balanced approach in policy making, without leaning too much towards either supporting the labor market or fighting inflation. While some policymakers have expressed a desire to cut rates at the Fed's policy meeting on September 16-17 to boost the cooling labor market, Musalem recently stated that he wants to see more data before deciding whether to support a rate cut at that meeting. He said, "Looking ahead, I expect the labor market to gradually cool and remain close to full employment, but the risks are tilted to the downside." The Fed has kept rates unchanged this year to observe how policy changes, including tariffs, affect inflation. As hiring by businesses slows down in the summer, calls for rate cuts have increased. At the July policy meeting, two Fed governors, Bullard and Bowman, even voted in favor of a rate cut. Musalem pointed out that the slowdown in business hiring is due to both reduced demand and a decrease in labor supply under immigration restrictions. Meanwhile, economic growth has slowed down this year, and policy uncertainties have led to cutbacks in spending by businesses and households. In this environment, any increase in layoffs could have a greater impact on the labor market than during stronger economic periods. He noted that inflation is still closer to 3% rather than the Fed's target of 2%. He expects tariffs to gradually feed into the economy over the next two to three quarters, after which their impact on inflation will gradually weaken. He added, "However, there is considerable uncertainty, and I believe that inflation above the target may be more persistent." He mentioned that tariffs could spread to other goods and services, or trigger a second round of price increases. He also warned that despite long-term inflation expectations remaining anchored, the market remains sensitive to the risks of faster price increases.