US Inflation Concerns Prompt St. Louis Fed Chief's Call for Further Rate Hikes

The US Federal Reserve may need to increase interest rates further to combat inflation, according to St. Louis Fed President Alberto Musalem. In a recent interview with Reuters, Musalem emphasized the importance of keeping monetary policy restrictive to bring inflation back to its target.

Musalem noted that strong demand and a broader commodity price shock are contributing to elevated inflation risks. He stated that without further policy restraint, it is more likely for inflation to remain above the Fed's 2% target in 18 months rather than reaching it.

The Personal Consumption Expenditures (PCE) Price Index, the central bank's preferred inflation gauge, rose 3.7% year-over-year in July. Musalem highlighted that even after excluding supply-related factors, underlying inflation is running about one percentage point above the Fed's target and is 'moving in the wrong direction.'

Musalem stressed the need to act earlier with gradual policy tightening rather than delaying action and potentially requiring larger and more abrupt measures later.