Alb‍erto G. Musalem, Presid⁠e⁠nt of the Federal Reserve Ba‌n‌k of St. Louis and a non-voting member of the Federa⁠l Op‍en Market Committee (FOMC) in 2026⁠ becaus‍e St. Louis​ sits o​u​ts​ide t‌hi‍s y‍ear’s regional​ rotation, p​u⁠she​d for‍ highe‌r rates an‌d‍ said th⁠e‍y ought to go up over the next 6 to 9⁠ m‍o‌nths. To‍ bri⁠ng inflation bac​k to‌ 2%, he ar‍gued, the Fed needs more monetary policy fi​rmness, and it ha‍s to‌ move in a ti​mely way to limit se‌cond-r⁠oun​d ef⁠fects.

Inflation is elevated, he said, and persistent demand pressures and supply shocks keep it there. The economy leaves the Fed one clear job. He called it pretty strong and said the best thing the Fed can do is lower inflation, while he described the job market as balanced and stable, with no need to cool it to get prices down.

He also pointed to what is pushing yields up. Real yields have climbed mainly on expectations for the policy rate, with AI investment and government deficits adding pressure, and demand for capital now running at 3% to 4% of GDP should keep rates higher than they used to be.

Fiscal worries sit behind that. Musalem said the US government has been on an unsustainable fiscal path for years, that investors raise fiscal sustainability concerns with him, and that debt management and monetary policy must stay separate.

He drew a firm line on credibility. Market inflation expectations remain anchored, he said; he does not see the Fed’s credibility in question, and he called monetary policy independence a valuable asset.

Key Quotes:

Monetary Policy

  • Rates ought to be going up in the next 6 to 9 months

  • To bring inflation back to target, more monetary policy tightening will be required

  • Key to bring inflation back to 2% on time and limit second-round effects

  • I go into all meetings with an open mind.

Inflation

  • Inflation is elevated and being driven by persistent demand pressures and supply shocks

Labor Market

  • The job market is overall balanced and stable; there is no need to cool the job market to get inflation down

Growth & Economy

  • The economy is pretty strong right now; the best thing the Fed can do is lower inflation

  • There is a risk consumer vigor could wane

Yields & Capital Demand

  • AI investment and government deficits are also pressuring yields higher

  • Real yields up mainly due to policy-rate expectations

  • Demand for capital running 3% to 4% of GDP now

  • Higher demand for capital is seen continuing 5-10 yrs

  • Strong demand for capital likely to keep rates higher than they used to be

Fiscal Sustainability

  • The US government has been on an unsustainable fiscal path for years

  • It’s possible government debt levels may eventually create risks

  • Hear from investors some fiscal sustainability concerns

  • Important to keep government debt management and monetary policy separate

Fed Independence & Credibility

  • Market inflation expectations remain anchored; doesn’t see Fed credibility questioned

  • Monetary policy independence is a valuable asset

Financial Conditions

  • Credit conditions are solid and good amid some slight issues in the market.

  • Financial conditions have tightened modestly and orderly.

On the Ground / Real Economy Feedback

  • Contacts are mostly worried about inflation and do not see job market worries