Dialogue with the Federal Reserve Bank of Saint Louis
US Economic Outlook: Moderate Growth and Persistent Inflation Pressures
In a discussion hosted by OMFIF in July 2025, Alberto Musalem, President of the Federal Reserve Bank of St. Louis, and Mark Sobel, OMFIF US Chair, delved into the US economic outlook. The conversation highlighted a steady but not robust growth trajectory, a gradual easing yet persistence of inflation pressures, and the implications for monetary policy.
Musalem emphasized that while inflation has moderated from its earlier peaks, it remains elevated due to supply-side constraints and lingering demand pressures. The labor market, he noted, remains strong, supporting consumption but also sustaining inflationary risks. This environment necessitates a cautious monetary policy stance that balances controlling inflation without undermining employment and growth.
The Federal Reserve, according to Musalem, is expected to continue a gradual path of monetary policy adjustments, including careful calibration of interest rates, to achieve a soft landing that curbs inflation while avoiding recession. This outlook suggests that while the Fed may slow the pace of rate hikes, the stance remains restrictive relative to historical standards until inflation decisively trends down towards the 2% target.
The conversation also touched on uncertainties such as geopolitical risks, global economic developments, technological advancements, and the role of fiscal policy in shaping the US inflation outlook. Musalem and Sobel underscored the importance of data-dependent decision-making, readiness to adjust policies if inflation or growth deviates from expectations, and an emphasis on communication to anchor market expectations and maintain financial stability.
Transparency in monetary policy decisions was another key point in the discussion. Both Musalem and Sobel agreed on the need for clear and consistent communication to ensure market participants understand the Fed's strategy and expectations.
In conclusion, the US economic outlook presents a challenging landscape, with moderate growth prospects and persistent inflation pressures. The Federal Reserve, under Musalem's leadership, is poised to navigate this landscape with caution, balancing the need to control inflation with the goal of maintaining employment and growth. The discussion between Musalem and Sobel serves as a timely reminder of the complexities and uncertainties that characterise the US economy and the need for vigilance and adaptability in monetary policy decision-making.
[1] Federal Reserve Bank of St. Louis - https://www.stlouisfed.org/ [2] OMFIF - https://www.omfif.org/
- To tackle persistent inflation and maintain financial stability, the Federal Reserve, as outlined by Musalem and Sobel, advocates for data-driven policies, adjusting them if inflation or growth deviates from expectations, and prioritizing clear communication about the bank's strategy.
- In the context of the US economic outlook marked by moderate growth and elevated inflation, the use of AI and data in policy-making could be crucial for the Federal Reserve in making informed decisions, considering factors such as geopolitical risks, technological advancements, and global economic developments, ultimately helping to achieve the desired 2% inflation target.
