Fed official says further rate cuts can wait

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Subscribe to enjoy similar stories. ST. LOUIS—A Federal Reserve official said he viewed last month’s decision to lower interest rates as a “close call" because the economic outlook appears to be different now than it was when the central bank started cutting rates four months ago.

St. Louis Fed President Alberto Musalem said by the time of last month’s meeting the risk that inflation might get stuck between 2.5% and 3% had increased. As a result, he thought greater caution would be appropriate in making further reductions.

Musalem had previously indicated he was supportive of the Fed’s decision to begin cutting rates with a bolder half-point rate cut in September. “Since September, the picture changed," he said in an interview at the bank on Thursday. “The economic data came in stronger…and the inflation numbers printed higher than desired.

So I changed my assessment of risks." Going forward, rate reductions “have to be gradual—and more gradual than I thought in September," he said. Musalem, an economist who spent much of his career in finance, joined the bank last April and will take a turn as a Fed voter this year. He said he wasn’t one of four officials last month who suggested a rate cut wasn’t needed in projections submitted at the meeting.

He said he penciled in two cuts for this year in those projections, putting him in line with the median of 19 participants who submitted them. Among the puzzles facing Musalem and his colleagues this year is what constitutes a “normal" or neutral interest rate that neither spurs nor slows growth. That question hadn’t been relevant for most of last year because the Fed had lifted rates to a two-decade high to combat high inflation.