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Musalem Says Fed in 'last Mile' of Inflation Fight but Recent Data Raise Risks

Musalem Says Fed In ‘Last Mile’ of Inflation Fight, But Recent Data Raise Risks

The Federal Reserve is in the “last mile” of its inflation fight, with price pressures converging towards the U.S. central bank’s 2% target. However, recent data have raised the risk that progress may slow or reverse, St. Louis Fed President Alberto Musalem said on Wednesday.

“In my baseline scenario, based on current information, I expect inflation to converge toward 2% over the medium term,” Musalem said, a situation that would allow the Fed to “judiciously and patiently” continue to lower interest rates.

But “recent information suggests to me that the risk of inflation ceasing to converge toward 2%, or moving higher, has risen, while the risk of an unwelcome deterioration in the labor market has remained unchanged or possibly fallen,” Musalem said in prepared remarks to an Economic Club of Memphis luncheon, pointing to ongoing solid growth and a largely healthy business sector.

Though Musalem said he was “attuned to the possibility of rising layoffs going forward,” the economic strength overall “provides some confidence that a disorderly labor market deterioration is unlikely.”

Last week, the Fed cut its benchmark policy rate by a quarter of a percentage point at its meeting and is expected to do so again in December. Recent inflation data, however, has shown little progress towards the 2% goal, even as central bank officials say they remain confident that price pressures continue to ease.