Fed's Musalem Says There's 'Limited Room' For Further Rate Cuts Without Policy Becoming Overly Accommodative

Federal Reserve Bank of St. Louis President Alberto Musalem on Monday cautioned that there is “limited room” for the Federal Reserve to cut interest rates further without the monetary policy becoming “overly accommodative.”

“While providing insurance against labor market weakness, I believe monetary policy should continue to lean against persistence in above-target inflation,” Musalem said in a speech at a Brookings Institution event.

Musalem added that he supported the 25-basis-point cut announced by the Fed last week as a precautionary measure to fend off labor market weakness. “To be clear, I expect the labor market will remain near full employment or soften only modestly, and inflation will return to a path toward 2% as the effects of tariffs wane,” he said.

The Fed official also voiced concerns about the two-sided risks to monetary policy. “I see a risk that above-target inflation could be more persistent than is desirable,” he said.

Last week, Federal Reserve Bank of Minneapolis President Neel Kashkari said he now expects two additional rate cuts in 2025, highlighting a “sharp increase” in the risks to unemployment.

However, he cautioned that the Fed should not preset its course of action now that it has cut the benchmark rate by 25 basis points. “I do not believe we should be on a preset course for a series of rate cuts. If the labor market proves more resilient than it seems at the moment or if inflation surprises to the upside, we should be prepared to pause and hold our policy rate,” he said.

Meanwhile, U.S. equities gained in Monday morning’s trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.14%, while the Invesco QQQ Trust (QQQ) gained 0.26%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was down 0.08% at the time of writing.

Also See: Apple Stock Gets A Price Target Hike From Dan Ives On Strong iPhone 17 Demand: Report

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