Comments from the Fed’s Musalem cross the wires:
- Moving sooner with rate hikes lessens risk of hit to broader economy.
- US central bank will need to raise interest rates again “soon.”
- Incremental changes in rates better than abrupt changes.
- Higher long-term bond yields driven by expected higher policy rates.
- Inflation still too high, unlikely to ease without Fed actions.
- Monetary policy is accommodative right now.
- Overall financial conditions remain accommodative.
- Best thing Fed can do now is restore price stability.
- Financial conditions tighter but not by much.
- Broader economy and job market strong.
- Risks still skewed toward higher inflation.
- Inflation expectations have been anchored.
Analysis: Musalem’s message is clearly hawkish. He sees inflation as unlikely to ease without additional Fed action and believes policy remains accommodative. His preference is to move sooner in smaller increments, reducing the risk that persistent inflation eventually forces a more abrupt tightening that hits the broader economy harder.
For traders, the key distinction is that higher long-term yields have not tightened financial conditions enough in his assessment. A strong economy and job market give the Fed room to act, while anchored inflation expectations offer reassurance without removing the need for further hikes. The policy bias is toward another increase soon; the unresolved question is how quickly that view translates into action.
This article was written by Greg Michalowski at investinglive.com.