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Zhitong Finance APP learned that Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said on Thursday that the risks of high inflation and rising unemployment have been balanced and the Federal Reserve is preparing to relax restrictive monetary policy. His speech once again suggested that unless there are some unexpected economic shocks, a rate cut in September is an inevitable trend.

“The risks of higher inflation appear to have receded, while the risks of further increases in unemployment have increased,” he said. “From my perspective, the risks on both sides of the Fed’s dual mandate look more balanced. The time may be coming to adjust moderately restrictive policy.”

Moussallem took over as president of the St. Louis Fed in April. He will become a voting member of the Federal Open Market Committee (FOMC), which sets the Fed's monetary policy, in 2025.

The FOMC has maintained the federal funds rate in a target range of 5.25% to 5.50% since July 2023. The market generally bets that a rate cut cycle will begin in September, and Fed officials have not explicitly refuted this in recent speeches.

Mousalem does not believe a recession is imminent, but he noted that there is still a range of possible scenarios for the U.S. economy. He expects real gross domestic product (GDP) to fall by 1.1% in the second half of 2024.GDP)The annual growth rate will be between 1.5% and 2%.

The unemployment rate climbed from a 50-year low of 3.4% last year to 4.3% in July this year. Wage growth has also slowed accordingly, reducing upward pressure on service sector inflation. At the same time, the easing of supply chain bottlenecks and increased selectivity in consumer demand during the COVID-19 pandemic have also helped to curb inflation in commodity prices.

The consumer price index rose in July, according to data released on Wednesday.CPI) rose 2.9% year-on-year, the first time annual inflation has been below 3% since March 2021.

"There is still some disinflation work to be done," said Mousallem. "The labor market has normalized and is no longer overheated... The tight labor market no longer appears to pose a clear upside risk to inflation."

He also mentioned the recent volatility in stock prices, especially the sharp drop in major indexes triggered by July employment data and the recession concerns it triggered, and said that the Fed is not worried about market volatility at the moment.

“As a policymaker, I am only concerned with the extent to which volatility tightens financial conditions, meaning whether it increases the cost of borrowing or issuing equity for companies, or increases the cost of credit for consumers,” Mousallem said. “If volatility is high enough or lasts long enough, it could affect the ability of companies or households to raise funds, and thus affect economic activity.”

He said recent volatility has not yet reached that standard and is unlikely to affect economic activity or Fed decisions.