What Musalem said and why
Musalem argued policy remains accommodative even after September's increase and warned inflation risks are "skewed toward persistent above-target inflation." He added, "Incremental adjustments made earlier are usually less disruptive than larger and abrupt actions taken later."
Speaking at a Shadow Open Market Committee event in New York, he said financial conditions have tightened lately, partly due to the Fed's actions, but not as sharply as after other big episodes. He also noted inflation expectations have stayed anchored. This year, Musalem is outside the roster of policymakers who cast votes.
Data and Fed context
According to Bureau of Economic Analysis data released Thursday, the Fed's preferred gauge - the personal consumption expenditures price index - was up 3.6% in September compared with a year earlier. Fed Chairman Kevin Warsh said the data flow ahead of the December meeting should help determine where rates need to be to return inflation to the 2% goal in a timely manner.
Timing and market reaction
In early October, Musalem said interest rates ought to move higher during the coming six to nine months to rein in elevated inflation. According to futures pricing, markets indicate investors expect the Fed to raise rates in December and again in March.
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Why it matters: a central banker pushing for "additional firming" while inflation runs at 3.6% keeps the path of policy in focus, and futures markets have already lined up around potential moves in December and March.
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