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A top Federal Reserve official has suggested that the US central bank should gradually reduce interest rates following a recent half-point cut. St Louis Fed president Alberto Musalem believes that the US economy could respond positively to looser financial conditions, helping the central bank in its mission to control inflation.
Musalem emphasized the importance of easing policy gradually to make it less restrictive. He was part of the group of officials who projected more quarter-point cuts for the rest of the year. The recent half-point reduction left benchmark rates at 4.75 to 5 percent, with the aim of strengthening the economy and addressing labor market weaknesses.
Despite acknowledging a cooling labor market, Musalem remains optimistic about the economy’s outlook. He mentioned the risks of a potential economic weakening, which could require quicker rate reductions. Governor Christopher Waller also expressed readiness to be aggressive on rate cuts if necessary.
The Fed’s latest projections indicate a potential half-point rate cut in the remaining meetings of the year, with varied opinions among officials. Musalem defended the recent rate cut, stating that it was necessary due to faster-than-expected inflation decline.