St. Louis Federal Reserve President Musalem stated that additional interest rate increases may be required to achieve the Fed's 2% inflation target. He believes that even after this month's rate hike, current monetary policy could still be stimulating the economy.

In a media interview on Monday, Musalem noted that persistently strong demand and recurring supply-side factors are jointly keeping inflation risks elevated. In his view, without further policy tightening, the probability of inflation running significantly above the Fed's 2% target over the next 18 months is higher than the likelihood of it returning to target levels.

This stance reinforces the hawkish policy signals recently released by the Federal Reserve. Fed officials voted unanimously last week to raise interest rates, marking the central bank's first increase in more than three years. Following this hike, the federal funds rate target range has risen to 3.75%-4%. Meanwhile, the latest rate projections from Fed officials indicate that another hike may occur within the year.

Fed Chairman Warsh stated after the meeting that this rate increase aims to withdraw some of the easing from monetary policy and help push inflation back toward the 2% target more quickly. Despite the Fed having initiated rate hikes, Musalem believes the current rate level may still be insufficient to significantly restrain economic activity.

He indicated that the current 3.75%-4% federal funds rate target range remains on the "accommodative side." This assessment implies that, in Musalem's view, current monetary policy may still be stimulating the economy to some extent, rather than adequately restraining growth and inflation. If more Fed officials share this judgment, it could mean that this round of rate hikes is not a one-off policy adjustment but rather the beginning of further monetary tightening.

Musalem does not have a voting right on monetary policy decisions at the Federal Open Market Committee (FOMC) this year, but he still participates in policy discussions. He also emphasized that raising rates gradually and earlier would likely cause less disruption to the economy than waiting for inflation pressures to worsen and then taking more aggressive policy action.

In other words, Musalem prefers to implement smaller, incremental policy tightening before inflation persistence risks become more clearly defined, reducing the likelihood of having to resort to sharp rate increases in the future. Musalem's latest remarks also reflect that the Fed's current focus is shifting from simply observing inflation levels to assessing whether price pressures are persistent.

Previously, at the September policy meeting press conference, Fed Chairman Warsh stated that Middle East conflicts and rising energy prices have increased near-term inflation pressures, but the Fed needs to focus not only on one-off price shocks but also on whether these shocks will spread further to other goods and services and affect public inflation expectations.