St. Louis Fed President MUSALEM said the Fed will likely need additional rate
hikes to bring inflation back to 2% and that policy must tighten further to
achieve the target within a 'timely' horizon. He said if 'timely' is roughly 18
months, rates may need to be raised again at an appropriate time over the next
6–9 months. Inflation remains the principal US economic problem, he added, but
strong growth and a stable labor market suggest the Fed could lower inflation
without materially harming employment. Asked about the Oct. 27–28 FOMC meeting,
he said he is open and has not pre-judged the outcome, but inflation dynamics
require continued consideration of further tightening. Despite a notable rise in
US Treasury yields, he judged financial conditions still accommodative and
supportive of growth, saying higher yields reflect expected higher real rates
and increased capital competition amid a strong economy rather than a loss of
confidence in the Fed.
