St. Louis Fed: limited room for further rate cuts
St. Louis Federal Reserve President Alberto Musalem said the Fed has “limited room” for further rate cuts after the September decision to lower them by 25-basis-point cut.
It was the first cut of 2025, aimed at supporting the labor market, but further easing could make policy “too accommodative.”
Musalem stressed that the current rate is “between moderately restrictive and neutral.” He added that he would only support further cuts only if the labor market worsens and inflation expectations remain stable.
Musalem stressed that the current rate is “between moderately restrictive and neutral.” He added that he would only support further cuts only if the labor market worsens and inflation expectations remain stable.
FOMC projections show divergence: seven Fed officials do not expect further cuts in 2025, ten anticipate at least another 0.5% cut, and two forecast one additional 25 bp cut.
Musalem noted that while employment risks are rising, inflation may stay above the 2% target. Strong equity markets and tight credit spreads support the economy, but tariffs and labor shortages could have secondary effects.
On the same day, Atlanta Fed President Raphael Bostic said he sees little justification for more cuts and has factored in just one reduction in 2025 in his outlook.
Thus, the September move was more of an “insurance cut” than the start of a new cycle. The Fed is expected to proceed cautiously, weighing labor market and inflation data at each meeting.
Musalem noted that while employment risks are rising, inflation may stay above the 2% target. Strong equity markets and tight credit spreads support the economy, but tariffs and labor shortages could have secondary effects.
On the same day, Atlanta Fed President Raphael Bostic said he sees little justification for more cuts and has factored in just one reduction in 2025 in his outlook.
Thus, the September move was more of an “insurance cut” than the start of a new cycle. The Fed is expected to proceed cautiously, weighing labor market and inflation data at each meeting.
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