St. Louis Fed President Musalem Says 'Limited Room' for Rate Cuts Before Policy 'Overly Accommodative'

10:34 AM EDT, 09/22/2025 (MT Newswires) -- With the current policy stance only modestly restrictive, there may not be significant room for further rate reductions, St. Louis Federal Reserve Bank President Alberto Musalem said Monday at Hutchins Center on Fiscal & Monetary Policy at Brookings.

Musalem is a voter on the Federal Open Market Committee in 2025.

"The stance of monetary policy now lies between modestly restrictive and neutral, which I view as appropriate," Musalem said. "However, I believe there is limited room for easing further without policy becoming overly accommodative, and we should tread cautiously for three reasons."

First, Musalem noted financial conditions are already supportive of economic activity.

Second, he said monetary policy should insure against labor market weakness, but "should continue to lean against persistence in above-target inflation, whether it materializes from the impact of tariffs, lower labor supply growth, or for other reasons."

Additionally, the real policy rate, after adjustment for inflation, is around 0.8%, according to Musalem, already close to a neutral real rate of 1%.

"I do not view 1% as a floor below which the real policy rate must not go," Musalem said. "But to go there, I believe the outlook or balance of risks must shift further from where they are today, especially if inflation looks likely to remain persistently above target."

He said that he would support additional rate reductions if there were signs of a further deterioration in labor market conditions as long as above-target inflation persistence does not increase.

"Looking ahead, my focus is on a policy path that equally weighs both sides of our dual mandate," Musalem said. "Pursuing a balanced approach to policy requires care. Putting too much weight on one goal at the expense of the other can lead to undesirable outcomes."

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