U.S. St. Louis Fed president "Inflation remains elevated, should approach rate cuts cautiously" [Fed Watch]

"Current policy is between neutral and restrictive"

"Maintain restrictive rates to control high inflation"

Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said, "Because inflation still remains above the U.S. central bank (Fed) target, additional rate cuts should be approached cautiously."

Musalem said at an event in Evansville, Indiana, on the 13th (local time) that "there is limited room to ease policy" and "it is necessary to move carefully so that monetary policy does not become too accommodative."

He characterized the recent Fed rate cuts as "a decision to support the labor market," but stressed that "to control high inflation, it is still necessary to maintain restrictive interest-rate levels."

Musalem assessed the current monetary policy stance as "somewhere between somewhat restrictive and neutral." He said, "With inflation above the target, we need to provide some support to the labor market while maintaining pressure to restrain inflation."

The Fed has cut the policy rate by a total of 0.5 percentage point this year as signs of slowing employment became clear. However, with inflation still elevated, some officials argue that rates should remain on hold for the time being.

The market views the possibility of an additional rate cut at the Federal Open Market Committee (FOMC) meeting on Dec. 9–10 as a 50-50 split. According to FedWatch that day, the probability of a 0.25 percentage point rate cut in December is 50.7%. Musalem added earlier this week, "The U.S. economy will show a strong rebound in the first quarter of next year," and said, "We should guard against excessive economic pessimism."

New York = Correspondent Shin-young Park nyusos@hankyung.com