Musalem Warns Excessive Cut in Fed Communications Could Raise Rates and Inflation

St. Louis Federal Reserve President Alberto Musalem has warned that excessive reductions in the US central bank's communications could lead to higher interest rates and inflation.

Musalem made his remarks at a London School of Economics event, where he stated that the Fed should not abandon public explanation altogether but rather provide a framework for households and businesses to understand how policymakers will respond as the economy changes.

He argued that without such explanations, central banks leave the public guessing, adding premiums for uncertainty, which can lead to higher borrowing costs for businesses and households, as well as an increased risk of inflationary or deflationary spirals.