Fed’s Musalem Sees Potential Rate Hikes Within Six to Nine Months

St. Louis Fed President Musalem said interest rates may need to rise again within the next six to nine months, as the Federal Reserve seeks to bring inflation back to its 2% target without materially weakening employment.

Musalem said additional policy tightening could be appropriate if achieving the inflation goal within roughly 18 months is considered a timely outcome. He remained open-minded about whether the Fed should raise rates at its Oct. 27-28 meeting and said he has not reached a view on that decision.

Inflation remains the main problem facing the U.S. economy, Musalem said, while economic growth is strong and the labor market remains stable. Those conditions could allow policymakers to reduce inflation without significantly damaging employment.

Musalem also said financial conditions remain accommodative and continue to support economic activity despite a notable rise in Treasury yields. He attributed higher yields to expectations for higher real interest rates and stronger competition for capital in a resilient economy.