Musalem says the Federal Reserve may need to raise interest rates further to curb inflation

Federal Reserve’s Musalem stated on Monday that, due to strong demand and commodity price shocks extending beyond the oil sector, the Federal Reserve may need to further raise interest rates to reduce inflation. He also emphasized that it is better for the Fed to take action early, rather than wait. Musalem said: “Persistent demand and recurring supply pressures continue to exacerbate inflation risks. In my view, if further policy measures are not taken to curb inflation, inflation is likely to be significantly above our 2% target in 18 months, rather than at the target level. I believe policy must place meaningful restraints on inflation. This will allow the Fed to achieve its inflation target in about a year and a half and leave time for tightening policies to affect the economy.” He also stated: “Compared to larger, possibly more abrupt policy moves in the future, an earlier and gradual policy tightening is more appropriate and has less impact on the economy.” Musalem pointed out that inflation “is not just a risk, it already exists.” Even excluding the effects of oil and other supply-related factors, the core inflation rate may still be several percentage points above the Fed’s target and is “moving in the wrong direction.”