The president of the St. Louis Fed, Alberto Musalem, calls for additional tightening of monetary policy. Governor Christopher Waller leaves the door open for a pause at the meeting on October 27 and 28.
The Federal Reserve of the United States (Fed) may be forced to raise interest rates again to bring inflation back to the 2% target. This was stated by Alberto Musalem, president of the St. Louis Fed, during an event organised by Bloomberg in New York, as reported by eleconomista.com.mx.
Musalem, who does not have a vote on the Federal Open Market Committee (FOMC) this year, has indicated that additional tightening is necessary for inflation to return to the target in a timely manner.
“For inflation to return to the target in a timely manner, greater tightening of monetary policy will be necessary”
The leader has outlined the timeline: if a reasonable timeframe is about 18 months, that suggests rates should continue to rise in the next six to nine months. Musalem did not want to comment on whether the Fed should raise rates at the meeting on October 27 and 28: “I come to each meeting with an open mind and do not prejudge what the outcome will be or what I will do in it.”
Traders expect the Fed to keep the cost of money in the range of 3.75% to 4.0% at that meeting. At the meeting on September 15 and 16, the central bank already raised rates and considered another increase for the end of this year.
On the same day, Fed Governor Christopher Waller stated that more hikes will likely be needed, although he added that there is “flexibility” in the pace and left the possibility of a pause this month open. “If the economic data comes in as expected, I anticipate new increases to support a more timely return of inflation to our 2.0% target,” he said in a prepared speech for a forum of the Central Bank of Turkey in Istanbul.
In Europe, the European Central Bank (ECB) may also be forced to continue raising rates due to upward risks to inflation. This was pointed out by Primož Dolenc, a member of the ECB's Monetary Policy Committee and president of the central bank of Slovenia, who added that the timing and magnitude of any action remain uncertain.
Dolenc noted that the ECB may feel somewhat relieved by the composition of the inflation data, which shows that high energy costs have been limitedly passed on to other goods and services and do not point to second-round effects on wages. The ECB has raised its deposit rate twice this year to 2.5%, after inflation surged last month to nearly double its 2% target.
The next key date for the markets will be the FOMC meeting on October 27 and 28, where it will be decided whether to maintain rates or implement a new adjustment.
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