Fed official says 3.75%-4.00% rate still accommodative

Federal Reserve Bank of St. Louis President Alberto Musalem said Monday that interest rates likely need to rise further, with inflation at greater risk of staying above the Fed’s 2% target than returning to it within 18 months. Rate futures priced three more 25bp increases across the next five Fed meetings through April, with roughly even odds of an October move.

Musalem described the current 3.75%-4.00% policy range, reached after this month’s 25bp increase, as still “on the accommodative side.” He said waiting would risk forcing the central bank into larger moves later, while an “earlier and incremental” approach would be preferable.

Musalem widens commodity inflation lens

The St. Louis Fed chief said inflation risks remain elevated from persistent demand and recurring supply forces. He said the labor market is stable around full employment and is not currently a source of inflation pressure, separating the present problem from a wage-led cycle.

Musalem also broadened the commodity channel beyond oil, pointing to base metals including copper. He said underlying inflation remains too high even excluding supply-related factors, running as high as 3%, and said business contacts are planning price increases closer to that level.

For rates, the mechanism is direct: if officials accept that policy is still accommodative, the front end of the Treasury curve is more exposed to repricing toward additional tightening. If inflation data cools instead, markets may pare the probability of the October increase first, before reassessing the full path through April 2027.