Fed's Musalem (2028 voter) says he expects the economy to grow at or above potential in 2026

Inflation/Job Market

• Says inflation is closer to 3% than 2%, but expects it to ease this year. Adds that labour market cooling is in an orderly way.
• Today's inflation is encouraging and it will converge closer towards 2% this year.
• Materialising job market risks or a faster fall in inflation might make cuts more appropriate.
• Metrics shows labour market has shown some resilience despite unemployment claims and layoff announcement.
• Says unemployment is around neutral and job growth is around breakeven of 30k to 80k per month.
• Expects labour market to stabilise around current levels.
• Policy offers flexibility for responses in all direction.
• Committed to get inflation to target.
• Goods and housing inflation should ease in 2026.

Broader Economy

• Companies are expressing cautious optimism about the economic outlook. Consumption is resilient and labour markets have normalised.
• Believes the US may be entering higher productivity phase but cautions it is soon to confirm.
• Deeper issues around housing affordability/supply, goes beyond mortgage interest rates.
• Economy expected to grow at or above potential, during 2026.

December

• Was in favour of a December rate cut but saw some slight risk of accelerating inflation.

Current Policy

• Current monetary policy is roughly at the neutral rate.
• Policy is well positioned to balance risks on both mandates.
• There's little reason for further easing of policy in the near term.
• Robust tailwinds, including fiscal and lagged impact of rate cuts, which will prompt growth.
• Unadvisable to have accommodative policy at this point.
• Accommodative policy is not advisable currently.
• Fed should not outsource rate decisions to assumptions about productivity.

Next Chair

• Chair candidates are all qualified, does not expect the reaction function to change significantly.

Operations

• On bill purchases, notes that QE intends to remove duration. Adds, current bill activity is very short-term.
• Situation, as it stands, is far shy of fiscal dominance and/or direct gov't financing.