Senior official of the Federal Reserve warns: Do not ease too quickly, lean more towards patience

In 2025, FOMC voter and St. Louis Fed President Muzaleem stated that he supported the Federal Reserve's decision to cut interest rates by 50 basis points last month, but emphasized that he prefers further rate cuts to be gradual. Muzaleem mentioned that the interest rate path he has in mind is slightly higher than the median official data in the economic projections summary released last month by the Federal Open Market Committee, but he will not preemptively judge the scale or speed of future rate changes. "Given the current economic conditions, I believe the cost of easing too early and excessively outweighs the cost of easing too late and too little," Muzaleem said in a speech on Monday, prepared for an event organized by the New York University Money Market Association. "I believe that further gradual reductions in policy rates may be appropriate over time," Muzaleem stated in his speech. "Patience has played a role in the FOMC's pursuit of price stability and remains appropriate now, but I will not preemptively judge the scale or timing of future policy adjustments." Last month, Federal Reserve officials cut the benchmark interest rate by 50 basis points, with Fed Chair Powell stating that this significant move beyond expectations was to protect the strong labor market. Muzaleem stated that such a move was appropriate as inflation had rapidly fallen below the 2% target set by the central bank, exceeding his expectations. He predicted that the inflation measure favored by the Fed - the Personal Consumption Expenditures Price Index (PCE) - would converge to 2% in the "coming quarters". Economic projections released after the September FOMC meeting showed policymakers expected another 50 basis points cut this year, implying 25 basis points cuts at each of the remaining two meetings in 2024. Seven officials believed there would only be a further 25 basis points cut this year, while two officials dissented against further adjustments. Muzaleem also mentioned in an interview with the Financial Times last month that he leaned towards "gradually" lowering rates after the significant rate cut in September, adding that policymakers had started their easing cycle from a "position of strength". According to data released by the Bureau of Labor Statistics last week, the U.S. labor market added 254,000 jobs last month, the most in six months, with the unemployment rate dropping to 4.1%. The stronger-than-expected employment report eased concerns about the labor market, reduced pressure on the Federal Reserve, and provided policymakers with room to slow down the pace of rate cuts in the future. "The labor market and inflation are both in a good state, and I believe the risks around these two objectives are roughly balanced around the baseline," Muzaleem said