Fed's Musalem says further tightening needed, rates should rise in next 6-9 months
In short
St. Louis Fed President Musalem said further monetary tightening is needed to bring inflation back to target and that interest rates should rise over the next six to nine months, CLS reported. Jiemian reported that Fed Governor Waller also said further hikes may be needed, while markets cut the probability of an October hike to about 20% after weak September jobs data.
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Fed official Musalem said further monetary tightening is needed to bring inflation back to target and that interest rates should rise over the next six to nine months, according to CLS, whose report was carried by 36Kr. Jiemian identified him as president of the St. Louis Fed. Musalem said the economy is currently fairly strong and the best thing the Fed can do is lower inflation, adding that market inflation expectations remain stable and he saw no sign of the Fed's credibility being questioned. [ 1 , 2 , 3 ]
Jiemian reported that several Fed officials spoke on monetary policy on October 8, Beijing time. Fed Governor Waller said that if economic data meet expectations, the Fed may still need to raise rates further to bring inflation back to 2% more quickly, but that the timing of hikes is flexible and action is not needed at consecutive meetings. He said next year's dot plot may reflect hikes first and cuts later. Jiemian added that minutes of the Fed's September meeting showed most officials expected another hike before year-end, but policymakers differed on the rationale: some cited the need to guard against broader effects of energy and other price shocks, while more hawkish officials cited emerging demand-driven inflation. [ 3 ]
On data, Jiemian cited New York Fed figures showing US short-term inflation expectations rose to 3.9% in September, the highest since May 2023, while core PCE rose 3.0% year on year in August. September nonfarm payrolls rose by only 29,000, far below market expectations, and the unemployment rate rose to 4.2%. Market-implied odds of an October hike fell from above 70% a week earlier to about 20%, with markets pricing about 25 basis points of remaining hikes in 2026. The 10-year Treasury yield stood at 5.23%, down about 5 basis points on the day, after earlier rising above 5.3%, the highest since 2002. The Fed's next policy meeting is scheduled for October 27-28. [ 3 ]
Jiemian wrote that the combination of sticky inflation and weakening employment has widened disagreement over the policy path: rising inflation expectations, energy and tariffs could add to price pressure and support further tightening, while weaker jobs reduce the urgency of consecutive hikes. It said rate uncertainty passes through Treasury yields, the dollar and global capital flows to growth stock valuations, gold pricing and emerging market assets, and that upcoming CPI and PCE data could still change policy expectations. [ 3 ]
Why it matters
Jiemian wrote that uncertainty over the US rate path feeds through Treasury yields, the dollar and global capital flows into growth stock valuations, gold pricing and emerging market assets. It said the mix of sticky inflation and weakening employment has widened disagreement over the policy path, and that coming CPI and PCE data could still change expectations.
Key facts
- Fed official Musalem said further monetary tightening is needed to bring inflation back to target. [ 1 , 2 , 3 ]
- Musalem said interest rates should rise over the next six to nine months. [ 2 , 3 ]
- Musalem said the economy is fairly strong, that the best thing the Fed can do is lower inflation, and that market inflation expectations remain stable with no sign of the Fed's credibility being questioned. [ 2 ]
- Fed Governor Waller said the Fed may still need to raise rates further if data meet expectations, but that the timing is flexible and action is not needed at consecutive meetings, Jiemian reported. [ 3 ]
- US nonfarm payrolls rose by only 29,000 in September and the unemployment rate rose to 4.2%, according to Jiemian. [ 3 ]
- Market-implied probability of an October Fed hike fell from above 70% a week earlier to about 20%, Jiemian reported. [ 3 ]
- The Fed's next policy meeting is scheduled for October 27-28. [ 3 ]
Confirmed by several sources
Still unclear
- Whether the Fed will raise rates at its October 27-28 meeting. Jiemian reported market-implied odds of an October hike fell to about 20%, and Waller said hike timing is flexible.
- The reason for further hikes. Jiemian said the September meeting minutes showed policymakers disagreed on the rationale, with some citing energy and other price shocks and more hawkish officials citing emerging demand-driven inflation.
- Waller's comments, the September minutes details and the market data come from a single outlet. Only Jiemian reported these points.
What local media are saying
Timeline, local time
- CLS reports Musalem saying further tightening is needed to return inflation to target. [ 1 ]
- 36Kr carries the CLS report, including Musalem's view that rates should rise over the next six to nine months. [ 2 ]
- Jiemian publishes a wider report on Fed officials' remarks, inflation expectations, jobs data and market pricing. [ 3 ]