U.S. inflation stayed above the Federal Reserve's 2% goal in September, while St. Louis Fed President Alberto Musalem called Friday for policymakers to tighten monetary policy soon to reduce the risk of persistent price pressure.
In prepared remarks released Oct. 30, Musalem said inflation was more likely to remain above target without additional restraint. “I judge that additional firming of monetary policy will be necessary, and soon,” he said. He did not give a date or size for a rate increase and said his remarks did not necessarily reflect the views of other Federal Open Market Committee (FOMC) members.
The FOMC voted 10-2 on Oct. 28 to keep the federal funds target range at 3.75% to 4%. Federal Reserve Gov. Lisa D. Cook and Cleveland Fed President Beth M. Hammack dissented in favor of a quarter-point increase. The committee said inflation remained elevated.
The U.S. Bureau of Economic Analysis (BEA) reported that the Personal Consumption Expenditures (PCE) price index rose 3.6% from a year earlier in September. The index excluding food and energy increased 3.1%. The BEA's advance estimate put real gross domestic product growth at a 3.4% annual rate in the third quarter, up from 2.2% in the second quarter.
Musalem cited strong consumer spending, investment in AI-related data centers, fiscal support and persistent demand and supply pressures. He characterized financial conditions as accommodative. In a less likely scenario, he said lower energy or shipping costs, stronger productivity, weaker AI investment or a sudden tightening in financial conditions could ease inflation without additional policy firming. He also said high mortgage rates, building costs and supply shortages were weighing on housing. Musalem argued that making smaller policy adjustments earlier could reduce the risk of a more disruptive response later.
The BEA's next Personal Income and Outlays report, which includes PCE data, is scheduled for Nov. 25 at 8:30 a.m. EST. The FOMC is scheduled to meet Dec. 8-9.
