St. Louis Fed President Alberto Musalem said it is crucial that monetary policy put a restraint on underlying inflation, rather than tolerating somewhat higher price pressures today to pursue anticipated productivity growth.
"I am an AI and productivity optimist, but I recently argued that the evidence does not yet justify setting monetary policy on the expectation of higher productivity growth in the future," according to the published text of his remarks.
Speaking at an event in São Paulo, Musalem said a central bank's most valuable contribution to long-run growth is to supply the stable prices backdrop so firms can plan the investment and innovation that fuel economic growth.
In addition, Musalem said the Fed's dual mandate is written in terms of prices and employment, and does not reference raising the economy's long-run growth rate. Therefore, relying on easier policy now for eventual productivity gains takes for granted the credibility of monetary policy.
"Credibility, once lost, is expensive to rebuild," Musalem said.
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