Federal Reserve Bank of St. Louis President Alberto Moussalem stated on Friday that he would be reluctant to support further interest rate cuts, given that inflation has remained stubbornly above the Fed's 2% target.
Speaking at an economists' luncheon in Rogers, Arkansas, Moussalem said he agreed with the Fed's decision this week to hold rates steady and believed that at a level of 3.5% to 3.75%, the Fed's interest rate target is no longer a significant drag on the economy. He stated that persistent price increases should dissuade the Fed from lowering interest rates to support the economy.
Moussalem said, "With inflation above target and risks to the outlook balanced, I believe it is unwise to lower rates into accommodative territory at this time."
Traders in the interest rate futures market widely expect the Fed to hold rates steady again at its next policy meeting in mid-March. The outlook beyond that is less certain—especially with President Trump's nominee to lead the Fed starting in May, Kevin Warsh, awaiting Senate confirmation.
Under the system where 12 Reserve Bank presidents rotate policy voting rights, Moussalem had a vote on interest rate policy last year but will not vote in 2026. Last year, he repeatedly warned against cutting rates too aggressively but ultimately supported the three rate cuts the Fed chose between September and December.
In his speech on Friday, Moussalem acknowledged that the job market has slowed over the past 18 months, but he said it has shown signs of regaining its footing. He expects that strong financial markets, business-friendly tax reforms, and productivity growth are all likely to support the economy this year.
Moussalem also argued that attempting to help the labor market by easing the short-term rates controlled by the Fed could be counterproductive. Moussalem said such a move could spark concerns about future inflation and push up long-term rates, which are a key determinant of mortgage costs and corporate borrowing expenses.
Moussalem said, "Ultimately, a strong labor market and economy depend on achieving and maintaining price stability."
