Federal Reserve voting member Musalem: It is still too early to determine whether to support a rate cut next month, pouring cold water on a 50 basis point rate cut

Alberto Musalem, President of the St. Louis Federal Reserve, stated that it is too early to determine whether he will support a rate cut at next month's meeting. "For me, it's still too early to say what kind of policy stance I would support at the September meeting." When asked if a 50 basis point rate cut is possible next month, Musalem indicated that, from his perspective, this does not align with the current economic conditions and outlook.

Last month, Federal Reserve officials kept the benchmark interest rate unchanged in the range of 4.25%-4.5%, maintaining this level since December of last year. After a cumulative rate cut of 1 percentage point in the last few months of 2024, the Federal Reserve has remained on hold this year to assess the impact of policy changes, including tariffs, on the economy.

Musalem pointed out that, on one hand, data is beginning to show some signs of the possibility of more persistent inflation; at the same time, he also mentioned that the labor market faces downside risks. Musalem stated that the slowdown in U.S. economic growth, coupled with the squeeze on corporate profit margins from tariffs, could threaten the labor market, which has performed well so far. "I weigh these two factors. When we see tension between the two objectives, a balanced approach is needed."

Tom Barkin, President of the Richmond Federal Reserve, noted signs of improvement in the U.S. consumer situation in July compared to earlier this year:

I sense a stronger vibe from consumers in July. If you look at the weekly credit card data, it looks much healthier.

Perhaps that is just a temporary air pocket (a brief downturn), and people will return to consumption on a healthier basis in the future. In my view, the fundamentals remain strong. People have jobs, and real wages are rising.

Barkin does not have a vote in Federal Reserve interest rate decisions this year.

U.S. Treasury Secretary Janet Yellen has repeatedly stated this week that, given the lack of rate cuts in June and July, along with revisions to employment data showing non-farm payrolls lower than previously estimated, a 50 basis point rate cut may be reasonable. Market participants expect the Federal Reserve to cut rates by 25 basis points at the September meeting.

A report released earlier on Thursday showed that U.S. wholesale inflation in July saw its largest increase in three years, primarily driven by soaring profit margins, indicating that companies are passing on higher import costs from tariffs to consumers. Earlier this week, another report showed that the U.S. core CPI in July exceeded expectations, driven mainly by rising service prices, although the overall CPI still leads the market to anticipate a rate cut in September