Fed's Musalem: Need to proceed with caution now

Federal Reserve (Fed) Bank of St. Louis President Alberto Musalem spoke about the US economy and monetary policy at the Economic Impact & Policy Forum hosted by the University of Evansville, in Indiana, on Thursday. He said that the policy is closer to neutral than modestly restrictive and that the economy is pretty resilient.

Key quotes

Outside of data centers business investment has been tepid.

Businesses learning how to run their firms in uncertain environment.

Critical to return to having readily available official data that has integrity.

We are not flying blind though.

Have a reasonable picture of what economy is doing.

AI appears to be adding to productivity and displacing workers.

Doubtful that most announced layoffs are AI, more likely plain vanilla automation.

Observing labor market risks, high inflation and risks.

Economy is pretty resilient.

Expect 4Q weakness, rebound 1Q with next year at or above potential.

Very accommodative financial conditions and deregulation are tailwinds.

Expect labor market to stay around full employment, likely to soften a little, get to 4.5%.

Expect impact of tariffs to fade by 2H next year.

Expect inflation to fall starting 2H next year, provided we have appropriate monetary policy.

Supported rate cuts so far to protect labor market.

Need to proceed with caution now.

Limited room to ease without becoming overly accommodative.

Policy closer to neutral than modestly restrictive.

Need to continue to lean against inflation."