Federal Reserve's Moulson: Interest rates close to neutral, no reason to cut rates for now

The President of the Federal Reserve Bank of St. Louis, Mouloulm, said on Tuesday that he believes there is almost no reason to further relax monetary policy in the short term, as the Federal Reserve's policy rate is at a level "close to neutral," which will neither stimulate the economy nor significantly suppress it. Mouloulm pointed out that the current monetary policy is in a "good position" with the flexibility to adjust in any direction. He estimated that after excluding inflation factors, the current real policy rate is around 1%. In this context, he believes it would not be wise to shift monetary policy towards a significantly loose stance at this time. Regarding the economic outlook, Mouloulm said that in terms of risks, there is a certain downside risk in the labor market and an upside risk in inflation. However, he expects the U.S. labor market to stabilize at the current level, and inflation is expected to continue to progress towards the Federal Reserve's 2% target. The U.S. economic growth rate is expected to reach or slightly exceed potential growth this year. In terms of interest rate policy, he supported the Federal Reserve's rate cut decision in December of last year. He cited research from the St. Louis Federal Reserve Bank indicating a decrease in the proportion of companies planning to hire employees this year, while the proportion of companies planning to reduce staff size has increased. He also pointed out that if the weakness of the labor market in the future exceeds current expectations and inflation falls below 2%, then lowering the policy rate would be reasonable. In this case, the policy can still be moderately loose without entering a clearly stimulative range. Regarding the outlook for productivity, Mouloulm said he holds a "cautiously optimistic" attitude towards the possibility of the U.S. entering a higher productivity phase, but emphasized that it is still too early to draw conclusions. Regarding speculation from outside about the Federal Reserve's "unofficial" increase of the inflation target to 3%, he emphatically denied it. He stated that both he and his colleagues take the 2% inflation target very seriously. When asked about the succession of the Federal Reserve Chair, Mouloulm said that the candidates to replace current Chair Powell all have "very high professional qualifications," and he expects the new Chair to firmly commit to price stability and full employment. He noted that the Federal Open Market Committee currently has 19 members. Furthermore, he emphasized that central bank independence is a "very valuable asset" for a country. He believes that implementing independent monetary policy without political interference often leads to better macroeconomic outcomes. This principle also applies to the Federal Reserve's policy-making process.