Musalem Reiterates Hawkish Stance on Inflation, Credibility

Alberto Musalem, President of the Federal Reserve Bank of St. Louis, has reiterated his hawkish stance on monetary policy, emphasizing the need to keep inflation under control rather than tolerating higher prices in pursuit of productivity gains.

In a speech prepared for delivery in São Paulo, Brazil, Musalem stated that the balance of risks is tilted towards inflation staying above target for a year or more. He argued that the Fed should not ease policy to foster higher productivity growth, as this assumes the central bank's credibility can be taken for granted.

Musalem emphasized that tolerating above-target inflation puts the anchor of households', firms', and investors' expectations at risk. He stressed that monetary policy must impose meaningful restraint on underlying inflation rather than allowing it to rise in pursuit of future productivity gains.