St. Louis Fed chief signals support for October rate cut

St. Louis Federal Reserve President Alberto Musalem said he is prepared to support an interest rate cut at the next meeting of the Federal Open Market Committee on Oct 28-29. 

His remarks, delivered during the Institute of International Finance Annual Membership Meeting, reinforce expectations that the central bank will cut rates again at its next meeting to bolster a slowing labor market.

The Fed lowered its benchmark rate in September to a 4.00–4.25% range, the first cut since more than a year ago. A second cut in as many months would signal that the Fed believes there is greater downside risk to employment and growth, even while inflation continues to hover modestly above its 2% target.

Musalem warns of inflation

Musalem cautioned that inflation “is not completely behind us,” even though the latest evidence shows it has moderated. Tariffs, labor shortages, and supply disruptions may continue to fuel price pressures through mid-2026 before easing, he said.

The St. Louis Fed leader also expressed concerns about a changing labor market, where the economy may no longer require as many new jobs to remain stable. With changes in immigration patterns and demographics, the monthly job gains needed to maintain the unemployment rate at its current 3.7% level could now be as low as 30,000–80,000, compared with previous estimates of more than 100,000, he said.

Musalem noted that, in his view, the labor market was broadly around full employment but cautioned that the Fed needed to remain alert for any signs of cooling.

Monetary policy should still lean against any prospect of persistent inflation pressures arising from resource use or outside price shocks, whether they originate from tariffs, wage stickiness, or slow labor force growth.

Fed consensus builds for another cut, but with limits

Musalem’s comments were the final ones before the Fed entered its pre-meeting blackout period, in which officials stop speaking to the press. His stance aligns with the increasingly widespread belief among policymakers that additional stimulus, likely another quarter-point rate cut this month, is warranted.

Fed Governor Christopher Waller said on Thursday that he supported another rate cut, noting that all available evidence on the labor market indicated it was not overheating and recommending that the FOMC lower its policy rate by another quarter percentage point.

Chair Jerome Powell has also hinted that he may be open to further easing, as hiring slows and businesses adjust to tightening financial conditions. Analysts are now becoming more comfortable with the prospect of an October rate cut, particularly given the disappointing job growth in recent months.

Still, not all officials agree. A few, including Michael Barr, executive vice president at investment firm FS Investments and company Vice Chair, urged against such dramatic action, suggesting that cutting rates would risk a revival of inflation or the dollar’s decline being even steeper.

With inflation still running above its target but on the decline and unemployment rising, the Fed is navigating one of its narrowest tightropes in years. That decision could mark a significant shift in the central bank’s stance, away from one that emphasizes fighting inflation and toward one that prioritizes these other considerations, albeit not entirely single-minded in its focus on jobs and growth.

The key question is how that balancing act works out, and Musalem’s statement offers the best evidence. His cautious optimism aligns with the overall mood at the Federal Reserve, one that is deliberate, data-driven, and deeply attuned to the risks associated with moving too quickly or too slowly.

The Fed is pushing through its late-October meeting with markets, businesses, and households looking for signs that the era of higher rates may finally be receding, at least a little, to make room for looser monetary policy.

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