St. Louis Fed President Musalem sees ‘limited room’ for more interest rate cuts

St. Louis Federal Reserve President Alberto Musalem on Monday reiterated his support for last week’s interest rate cut, but said he is wary about going much further.

Speaking less than a week after the Federal Open Market Committee lowered its key overnight borrowing rate by a quarter percentage point, the central bank official advocated caution as he continues to worry about inflation.

Musalem characterized the cut as “a precautionary move intended to support the labor market at full employment and against further weakening.”

“The stance of monetary policy now lies between modestly restrictive and neutral, which I view as appropriate,” he added in prepared remarks for a speech to the Brookings Institution in Washington, D.C. “However, I believe there is limited room for easing further without policy becoming overly accommodative, and we should tread cautiously” on further reductions.

The full FOMC, in its closely watched “dot plot” grid of future rate projections, indicated that one official wanted no cuts this year, including last week’s, and eight others were content with just one more. However, a slight majority saw the need for at least two more cuts, implying one each at the two remaining meetings this year.

Musalem said he sees financial conditions are “supportive,” is still concerned about the inflationary impact of tariffs and considers the current federal funds rate, now targeted between 4%-4.25%, as “close to neutral,” a level that neither boosts nor restricts economic growth.

While he said he sees risks tilting more towards the labor market than inflation, he cautioned against going too far.

“Putting too much weight on one goal at the expense of the other can lead to undesirable outcomes,” he said.