Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said that both inflation and employment risks are on the rise, and officials should be prepared to adjust interest rates at any time in response to economic developments.
Mussailem said at the American Enterprise Institute in Washington on Wednesday: “The current policy can well deal with the risks faced by the dual mission targets. I expect the current policy interest rate setting to remain appropriate for some time. However, if the economic situation indicates that a policy stance adjustment is needed, I will support making the corresponding adjustment.”
Fed officials are assessing how a spike in energy prices resulting from potential US and Israeli air strikes on Iran would affect inflation and the economy. Fed Chair Jerome Powell said on Monday that the current policy situation is suitable for officials to wait and see. According to the pricing of federal funds futures contracts, investors currently expect interest rates to remain unchanged for the rest of the year.
Musaalem said that he supported the central bank’s decision to keep interest rates unchanged this year. When answering questions after the speech, he said that the war in Iran had exacerbated the uncertainty of the economic outlook.
If the conflict ends within two or three weeks, he will closely monitor what “echoes” will occur in the energy market and financial conditions. He said, “Even if the war ends, it will take time to restore a large amount of damaged production capacity.”
His basic assumption is that the unemployment rate will remain stable around the current level, economic growth will be close to the potential level, and the potential inflation rate will gradually decline to 2% later this year.
In an interview with reporters after his speech, Musallam said that since the outbreak of the war, the possibility of achieving this benchmark has decreased. He has slightly lowered the economic growth forecast and raised the unemployment rate forecast by a few percentage points. He said that he expects the overall inflation rate to rise significantly, but the forecast for the core inflation rate will only increase slightly.
The president of the St. Louis Federal Reserve refused to specify how long he thought interest rates should remain at the current level, saying the exact duration would depend on economic conditions.
He said that if the labor market deteriorates and inflation does not rise, or if inflation drops, he might support lowering interest rates. But he also said that if the core inflation rate or medium- and long-term inflation expectations continue to rise and move away from 2%, he would also support raising interest rates.
He said, “If inflation expectations become unanchored, not only will there be a risk of rising inflation, but it will also lead to slower economic growth and a weaker labor market.”
Technical analysis:
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Gold: This morning, Trump made tough remarks, causing the short-term price to drop rapidly by over 100 dollars. Currently, the price has temporarily stabilized above 4650. We will closely monitor whether a stronger rebound signal emerges after the liquidity at 4650/4630 is swept. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: The yellow liquidity sweep area we provided through the plugin yesterday was not reached. This morning, it dropped rapidly and approached that area. Continue to pay attention to the sweeping action at this point during the day. After it is completed, consider capturing the long rebound signal. For the exact position, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Affected by Trump’s remarks, the price has returned above 104. However, we remind you to be cautious as the further upward momentum could be withdrawn at any time due to changes in the Middle East situation. In terms of operation, pay attention to the pullback signal that appears after reaching around 105.50; or wait for a break below 103.50 and then look for the supply zone to attempt 1-2 short signals. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
19:30 U.S. Challenger Job Cuts in March (in thousands)
20:30 US Initial Jobless Claims for the Week Ended March 28 (in 10,000s)
