US stock futures muted as rate cut bets wane ahead of Jackson Hole
Investing.com -- Alberto Musalem, the President of the Federal Reserve Bank of St. Louis, anticipates that U.S. economic growth this year will likely fall considerably below the estimated trend of 2%, according to an interview with Reuters. Despite the prediction of a slowdown, Musalem does not foresee a recession. His outlook is based on a combination of factors including slipping confidence, higher prices, and a hit to household wealth.
Musalem noted that financial conditions have tightened, but he does not see any market dysfunction in the recent volatility. He indicated that markets are responding to reassessments of global growth. There is a growing tension between the Federal Reserve's dual mandate goals as the risks of slower growth and higher inflation start to materialize.
While inflation expectations remain anchored, Musalem stressed the importance of the Federal Reserve's role in keeping them that way. He warned that it would be risky to assume the Federal Reserve can overlook higher prices resulting from tariffs, suggesting that some effects could persist.
He emphasized the need for a balanced approach to monetary policy as long as inflation expectations remain anchored. Musalem also mentioned that businesses are not resorting to layoffs, but are instead adopting a wait-and-see approach to hiring and capital spending plans.
In the event of higher-than-anticipated tariffs, companies and households may need to adjust to increased prices, potentially leading to a rise in the unemployment rate. Musalem's stance on monetary policy response will depend on the evolution of inflation and unemployment in the coming months, the persistence of the price shock, and the consistency of inflation expectations with the Federal Reserve's 2% inflation target.
Musalem, who has a vote on interest rate policy this year, referred to anchored expectations as a necessary but not sufficient condition for the Federal Reserve to reach its 2% inflation target. He stressed vigilance regarding the risks associated with keeping unemployment low and inflation stable, and committed to maintaining a balanced approach as long as inflation expectations do not threaten to rise.
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