Alberto Musalem, the President of the Federal Reserve Bank of St. Louis, unequivocally endorses the last implemented interest rate reduction. At the same time, he pushes back on any attempts for future cuts. Written on December 14, 2022. On February 20, 2025, Musalem delivered this keynote address to the Economic Club of New York. As the CEO of the bank, he provided a unique perspective on the current financial landscape and what monetary policy is doing to it.
Musalem was an advocate for last week’s interest rate cut. He noted that call was needed now more than ever given the state of the economy. He said that it will be difficult, if not impossible, for them to cut again. He suggested the Fed may be running out of room to ease monetary policy. His experiences as a voting member of the Federal Open Market Committee (FOMC) this year are incredibly valuable. One way or another, they will be impacting and shaping future policy decisions.
He called the financial market conditions “supportive … near neutral.” This is why they don’t much propel and don’t greatly impede economic development. This overall assessment is a major factor in deciding what to do about future interest rate increases.
Musalem favors an even bigger cut. Rest assured that a minority of the FOMC, maybe even a majority including him, knows we require at least two more interest rate cuts in the immediate future. The suggested timetable would indicate at least one reduction at each of the still-scheduled meetings this year.
Musalem as staff discussed how to prioritize the balancing act required by monetary policy goals. He stated, “Putting too much weight on one goal at the expense of the other can lead to undesirable outcomes.” His caution is indicative of a larger trepidation among the policy making class with putting one economic goal above another and inviting unforeseen repercussions.
Given these caveats, Musalem called for caution on any additional easing. He stated that there is “limited room for easing further without policy becoming overly accommodative,” reinforcing his call for prudence in navigating the complexities of the current economic environment.