By Matt Grossman
WASHINGTON--St. Louis Fed President Alberto Musalem said Wednesday the Fed's current interest-rate stance will likely be the right one for the foreseeable future, and he could support either a cut or a hike as the Fed's next move depending on how the economy evolves.
Speaking at a think tank in Washington Wednesday morning, Musalem said the Fed's 3.5% to 3.75% interest-rate target is a good balance between competing risks that the central bank is facing: persistent inflation and a labor market that in recent months has appeared more fragile.
He said the Fed's rate target is probably toward the lower end of a neutral range where it would be neither stimulating nor restraining the economy, suggesting the Fed might not be able to bring rates lower without inadvertently stoking inflation.
"Policy is well positioned to address risks to both dual mandate objectives, and I expect the current setting of the policy rate will remain appropriate for some time," Musalem said.
The Fed has held rates steady at both of its meetings so far this year after three straight cuts to end 2025. Officials came into the year projecting one further rate cut and reiterated that projection last month. But investors have become more skeptical another cut will arrive because the oil shock from the Iran war has threatened further price increases.
Musalem said he could eventually support a further rate cut if the labor market is weakening and if a cut seems unlikely to cost the Fed credibility in its anti-inflation posture. But he also said he could back raising rates if inflation rises-or if the public seems to be losing confidence that the Fed will address it.
"Allowing inflation expectations to become unanchored would risk not only higher inflation but also slower growth and a weaker labor market," he said.
The Fed's policy committee, led by Chair Jerome Powell, has so far decided not to indicate consideration of a rate hike as part of its formal guidance to markets. But Musalem joins a small group of Fed officials who have put that possibility on the table since the Iran war began.
For now, traders are highly confident the Fed will hold interest rates steady at its next meeting later this month, based on their bets in financial markets.
Write to Matt Grossman at matt.grossman@wsj.com
(END) Dow Jones Newswires
04-01-26 0919ET
