According to a report from Financial Association on August 15 (Editor Zhao Hao), St. Louis Fed President Alberto Musalem recently stated that it is still too early to conclude whether to lower interest rates at next month's meeting.
On Thursday (August 14), Musalem said in an interview, 'For me, it is still too early, and I cannot clearly state what policy stance I would support at the September meeting.'
Last month, the Federal Reserve maintained the federal funds rate target range between 4.25% and 4.50% for the fifth consecutive meeting, indicating that the bank has been 'holding steady' this year.
In comparison, the Federal Reserve cut rates by a total of 100 basis points in the last few months of last year. This led to multiple criticisms from Trump towards Chairman Powell for being 'too politicized' and unfit for his position.
Powell explained at the July decision press conference that the impact of the tariff hikes (led by Trump) on U.S. economic activity and overall inflation remains to be seen.
Affected by the CPI increase being lower than expected on Tuesday, the market briefly began to anticipate that the Federal Reserve would cut rates by 50 basis points at the September meeting.
This week, U.S. Treasury Secretary Scott Basset has repeatedly stated that considering there were no rate cuts in June and July, and with non-farm employment numbers below previous estimates, a 50 basis point cut in September may be reasonable.
However, Musalem stated that from his perspective, a 50 basis point rate cut is 'not consistent with the current economic conditions and their outlook.'
Musalem pointed out that on one hand, 'data is starting to give some signals that inflation may be more persistent.' But he also acknowledged that 'there are downside risks in the labor market.'
Musalem indicated that the slowdown in U.S. economic growth, coupled with tariffs putting pressure on corporate profit margins, could threaten the labor market, which has performed robustly so far.
'I am weighing these two factors,' he said, 'when we see conflicts between dual mandate goals, we need to take a balanced approach.'
Although CPI was lower than expected, the unexpectedly rebounding PPI earlier in the day has brought uncertainty. Data shows that the U.S. PPI rose by 0.9% month-on-month in July, the last time the PPI monthly rate reached 0.9% was in May and June of 2022.
Analysts believe that new inflation is permeating the entire economic chain, even if consumers have not yet felt it directly.
Chris Zaccarelli, Chief Investment Officer of Northlight Asset Management, pointed out that the unexpected rise in PPI undoubtedly undermines the optimistic sentiment of a 'rate cut in September'.