St. Louis Fed President: Further rate hikes still needed over the next 6 to 9 months; inflation is the top issue for the U.S. economy

St. Louis Fed President Musalem said on Thursday that the Federal Reserve still needs to raise interest rates further in order to bring U.S. inflation back to its 2% target in a timely manner. However, he did not explicitly support taking action at the monetary policy meeting later this month, stressing that future rate decisions will still depend on economic data. Speaking at an event in New York that day, Musalem said: "In order to bring inflation back to target in a timely manner, monetary policy will need to be tightened further." He further explained that if the Fed wants to bring inflation down to 2% in about 18 months, it may need to continue raising rates at appropriate times over the next 6 to 9 months. However, when asked whether the Fed should raise rates at its October 27-28 meeting, Musalem did not give a clear answer. He said: "I remain open-minded going into every meeting, and I do not prejudge what the meeting will decide, nor do I predetermine what stance I will take." Musalem also stressed that, in terms of overall direction, the current inflation situation still requires the Fed to consider further tightening of monetary policy. It is worth noting that Musalem is not a voting member of the Federal Open Market Committee (FOMC), which sets interest rate policy, this year, but his remarks still reflect concerns within the Fed about inflationary pressures and the need for future rate hikes. The Fed raised rates at its September 15-16 meeting, lifting the target range for the federal funds rate to 3.75% to 4.00%, the first rate increase in three years. The rate projections officials released at the time also showed that one more rate hike was expected before the end of this year. However, market expectations for the timing of the next rate hike have shifted recently. Previously, traders had once believed the Fed was likely to continue raising rates in October. But New York Fed President Williams said last week that the Fed need not rush to act while it assesses the latest economic data. Fed Vice Chair Jefferson then also said there was no urgent need for an immediate rate hike. Influenced by these remarks, the market now generally expects the Fed to keep rates unchanged at its October meeting and to postpone the next rate hike until December. Regarding the U.S. economic outlook, Musalem believes that against the backdrop of strong economic growth and a generally stable job market, inflation remains the top issue facing the U.S. economy. He said the Fed is expected to further reduce inflation without significantly harming the job market, and that returning inflation to the 2% target will benefit overall economic performance. Musalem also pointed out that despite the recent notable rise in U.S. Treasury yields, overall financial conditions remain relatively loose and continue to support economic growth. He believes that rising bond yields do not mean investors are losing confidence in the Fed. On the contrary, they reflect more the market's expectation of higher real interest rates and increasingly intense competition for funds in a strong economic environment. Musalem specifically mentioned that continued investment expansion in the technology sector and the U.S. government's massive financing needs are both important factors supporting bond yields at high levels. As capital spending in areas such as artificial intelligence continues to increase, technology companies' demand for funds keeps growing. At the same time, the U.S. government's large-scale borrowing to meet fiscal spending needs has further intensified supply-demand pressure in the funding market. When discussing the U.S. fiscal situation, Musalem issued a warning, saying that the federal government's long-term fiscal path is unsustainable. He said: "For most of the past nearly 20 years, the U.S. federal government has been on an unsustainable fiscal trajectory." Musalem pointed out that the government's continued high level of borrowing could bring risks to the U.S. economy. Although no obvious crisis of market confidence has yet emerged, the massive government financing needs are still worth watching.