St. Louis Fed President Musalem said strong demand and rising commodity prices could make further rate hikes necessary to bring inflation under control, and that early, gradual tightening would be preferable. Meanwhile, the Fed raised rates by 0.25% at its latest FOMC meeting, setting the range at 3.75%-4.00%.
President Musalem said strong demand, together with rising commodity prices including oil, could keep inflation elevated, and that further rate hikes are highly likely to be needed. He indicated that taking action early would be preferable to delaying the response.
He said that monetary policy takes time to exert a meaningful restraining effect to bring inflation under control, and that the effects of policy would be important to achieving the target in about 1.5 years.
Regarding the rate increases to date and the outlook for further moves, he said the current policy rate is "in accommodative territory." He avoided giving specific figures for the next policy response or the level of interest rates, but emphasized that early, gradual tightening would be preferable.
The FOMC recently raised rates by 0.25% and set the target range for the federal funds rate at 3.75%-4.00%. The possibility of further rate hikes this year has been suggested, and attention is focused on developments at upcoming meetings. President Musalem does not have voting rights at the FOMC this year.