Fed Official Signals Potential Rate Cut in September

St. Louis Fed President Alberto Musalem has joined a growing chorus of Federal Reserve officials leaning towards a potential interest rate cut at the central bank’s September meeting. In a speech on Thursday, Musalem indicated that the time may be nearing for an adjustment to the benchmark interest rate.

The official cited recent economic data as a key factor in his assessment. Inflation has shown signs of cooling, with underlying price pressures easing for the fourth consecutive month in July. Additionally, the labor market, while still strong, appears to be normalizing after a period of exceptional tightness.

Musalem emphasized that while the economy is on a solid footing, with growth projected to be around 1.5% to 2% for the remainder of the year, there are risks associated with cutting rates too soon or too aggressively. He expressed confidence that a recession is unlikely in the near term.

The Fed has been grappling with balancing the need to curb inflation while supporting economic growth. Last month, policymakers opted to hold interest rates steady but signaled a potential rate cut as soon as September. Chair Jerome Powell echoed this sentiment, suggesting that a rate reduction could be appropriate.

Musalem’s comments come as investors have been adjusting their expectations for monetary policy. After a weaker-than-expected jobs report in July, bets on a more aggressive rate cut were scaled back. However, recent data on inflation has renewed speculation about a potential rate reduction.

The Federal Open Market Committee (FOMC) is scheduled to meet on September 17-18 to determine the path of monetary policy. The market will be closely watching for further clues about the central bank’s intentions.