In a Monday interview with Reuters, Alberto Musalem warned that "both persistent demand and recurring supply forces are continuing to contribute to keeping inflation risks elevated," adding, "I judge that without further policy restraint on inflation it is more likely to be substantially above our 2% target in 18 months than at target." He also argued it would be "less disruptive" to nudge rates higher sooner in smaller steps rather than resort to bigger moves later.
Musalem, who is not a voter on policy this year, said the Fed's target range of 3.75% to 4% is "on the accommodative side," implying it may not be tight enough to slow the economy and cool price pressures. He also noted that even after this month's rate increase, monetary policy could still be providing a tailwind to activity.
Policymakers approved a hike last week - their first increase in more than three years - and indicated they expect to raise rates one additional time before the calendar flips. Fed Chairman Kevin Warsh said the move was designed to remove a "dose of accommodation" and to help bring inflation back to 2% more quickly.
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If policy is still leaning loose and officials think more tightening might be needed, borrowing costs on mortgages, credit cards, and auto loans could keep drifting higher. That backdrop tends to pressure rate‑sensitive spending while rewarding cash yields a bit longer. Keep an eye on how quickly inflation cools from here - that path will shape what the Fed does next and how expensive your money feels.
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