The Zhitong Finance App learned that St. Louis Federal Reserve Chairman Mussalem said on Thursday that in order for the US inflation rate to return to the 2% target in a timely manner, the Federal Reserve still needs to raise interest rates further. However, he did not clearly support action at the monetary policy meeting later this month, stressing that future interest rate decisions will still depend on economic data.
Mussalem said at an event held in New York on the same day: “In order for inflation to return to the target level in a timely manner, monetary policy needs to be further tightened.” He further explained that if the Federal Reserve wants to reduce the inflation rate to 2% within about 18 months, then it may need to continue raising interest rates at the right time in the next 6 to 9 months.
However, when asked if the Federal Reserve should raise interest rates at the October 27-28 meeting, Mussalem did not give a clear answer. He said, “I keep an open mind when attending every meeting. I don't judge in advance what decisions the conference will make, and I don't predetermine what positions I will take.”
At the same time, Mussalem stressed that from an overall perspective, the current inflation situation still requires the Federal Reserve to consider further tightening monetary policy.
It is worth noting that Mussalem was not a Federal Open Market Committee (FOMC) voting member responsible for formulating interest rate policies this year, but his statement still reflects concerns within the Federal Reserve about inflationary pressure and the need to raise interest rates in the future.
The Federal Reserve raised interest rates at the September 15-16 meeting, raising the federal funds rate target range to 3.75% to 4.00%. This is the first time in three years that the Federal Reserve raised interest rates. Interest rate forecasts announced by officials at the time also showed that interest rates are expected to be raised once more before the end of this year.
However, the market's judgment on when the next rate hike will be changed recently. Previously, traders thought it was likely that the Federal Reserve would continue to raise interest rates in October. However, New York Federal Reserve Chairman Williams said last week that there is no need for the Federal Reserve to rush to act while evaluating the latest economic data. Subsequently, Federal Reserve Vice Chairman Jefferson also said that there is currently no urgent need to raise interest rates immediately.
Affected by these statements, the market currently generally expects the Federal Reserve to keep interest rates unchanged at the October meeting and postpone the next rate hike until December.
Regarding the outlook for the US economy, Mussalem believes that in a context where economic growth remains strong and the job market is generally stable, inflation is still the primary issue facing the US economy. He said that the Federal Reserve is expected to further reduce inflation without clearly damaging the job market, and the goal of returning the inflation rate to 2% will benefit overall economic performance.
Mussalem also pointed out that despite the recent marked rise in US Treasury yields, the overall financial environment is still relatively relaxed and continues to support economic growth. He believes that rising bond yields do not mean investors are losing confidence in the Federal Reserve. On the contrary, it is more a reflection of market expectations of rising real interest rates, as well as increasing competition for capital in a strong economic environment.
Mussalem specifically mentioned that the continued expansion of investment in the technology industry and the huge financing needs of the US government are all important factors supporting the maintenance of high bond yields.
As capital expenditure in fields such as artificial intelligence continues to increase, technology companies' demand for capital continues to grow. At the same time, large-scale borrowing by the US government to meet fiscal expenditure requirements has further increased the pressure on supply and demand in the capital market.
When talking about the US fiscal situation, Mussalem issued a warning saying that the federal government's long-term fiscal development path is difficult to sustain. “For most of the past 20 years, the US federal government has been on an unsustainable fiscal trajectory,” he said.
Mussalem pointed out that the government's continued high level of borrowing may pose a risk to the US economy. Although there is currently no clear crisis of market confidence, the huge demand for government financing is still worth being wary of.