Federal Reserve Bank of St. Louis President Alberto Musalem said Wednesday that risks tied to inflation have been increasing compared with risks related to employment, while stressing a high degree of uncertainty about where the economy is heading.
Speaking at an event hosted by the Mississippi Bankers Association in Fairhope, Alabama, Musalem pointed out that inflation remains well above the Fed's 2% objective. He said policymakers must weigh both labor-market and price pressures, but that, in his view, the balance of risk has shifted.
"We have risks both on the employment side and on the inflation side. In my understanding, the risks have been shifting towards more risk on the inflation side than the employment side," Musalem said.
The Fed official indicated that the central bank's benchmark policy rate is currently at or close to what would be considered neutral for the economy, though he allowed that the stance could be slightly accommodative. Given that assessment, he said it is possible that rates will need to remain at current levels for an extended period to ensure inflation comes down toward target.
Musalem also acknowledged that the outlook is not clear-cut and that a range of outcomes remains possible. He said policymakers must be ready for scenarios in which they would either lower or raise rates depending on incoming data and how conditions evolve.
"So a lot of uncertainty right now, and it’s important to see how things settle," he said.
Last month, Fed policymakers voted to keep interest rates unchanged. The statement that followed the meeting prompted three officials to dissent from language suggesting the next move would likely be cuts. Those dissenters pointed to rising oil prices and uncertainty stemming from the war in Iran as factors that leave open the prospect that future policy could move either toward cuts or toward further tightening.
Musalem's comments underscore the Fed's current balancing act: with inflation still above target, officials are weighing whether to hold policy steady for longer, while remaining attentive to labor-market signals and geopolitical developments that could alter the outlook.