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St. Louis Fed President Alberto Musalem said Thursday that June’s cooler-than-forecast Consumer Price Index report points to “encouraging further progress” on the disinflation front.
Earlier, the Bureau of Labor Statistics posted its monthly update on the widely-watched CPI, which delivered encouraging news to the Federal Reserve as the retail inflation gauge cooled broadly in June to the slowest clip since 2021. That, in turn, spurred traders to significantly boost their bets on a September rate cut.
Musalem, who will be a voting member of the policy-setting Federal Open Market Committee next year, judged that monetary policy is currently restrictive as the current high rate environment is pressuring parts of the economy, he said in a fireside chat in Little Rock, Arkansas.
“I will be looking for more evidence that inflation can be expected to converge to 2% going forward,” he said, echoing his colleagues, including chair Jerome Powell, who have called for more good inflation data before starting rate reductions.
The St. Louis Fed chief did note that companies are still facing cost pressures, though wage growth appears to be returning to prepandemic levels. In all, the labor market is moving back into better balance, he added, as the “job market isn’t contributing to inflation the way it was before.”
Asked whether the U.S. will dip into recession, Musalem said he sees only around 20% odds of a downturn coming to fruition, as monetary policy isn’t overly restrictive. He expects the economy to grow 1.5%-2.0% this year.