Fed's Musalem (2028 voter) says US monetary policy 'well positioned,' should hold in place 'for some time'; Monetary policy is currently at the low end of the neutral range

Musalem's comments suggest a nuanced stance from the Fed, indicating that while current monetary policy is stable, there are elevated risks from war shocks and supply issues that could affect inflation and economic growth.

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Fed's Musalem (2028 voter) says US monetary policy 'well positioned,' should hold in place 'for some time'; Monetary policy is currently at the low end of the neutral range

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  • War shocks have increased risks to the economy and inflation.
  • Can see scenarios to both raise and cut interest rates.
  • Supply shocks carry greater inflation risks in the current environment.
  • He is cautious about looking through the impact of energy shocks.
  • Tariffs are still an inflation driver, but their impact should wane.
  • The economic outlook is highly uncertain.
  • The baseline case sees good growth, moderating inflation, and stable unemployment.
  • He sees unfavourable risks for both inflation and jobs.
  • Financial conditions are broadly accommodative.
  • He does not see broad stress from private credit issues.
  • Will take some time to bring back damaged infrastructure back online.
Context

His acknowledgment of both upside and downside scenarios for interest rates points to a careful balancing act ahead, as uncertainty remains high. This insight may lead traders to reassess expectations for future rate hikes or cuts, especially in light of the broader economic challenges.

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