Alberto Musalem

So the traditional way to think about monetary policy is that it is more effective with respect to cyclical and demand side type of factors.

But I think we also need to be thinking if the economy is going through a structural transition, what role does monetary policy need to play in facilitating that transition?

So we have to, in my mind, be thinking about those two things.

The way I think about it is I feel we have adequate information to make decisions to cut rates or not to cut rates.

For me, it's about the outlook that I happen to have and the balance of risk that I happen to have with the information that I currently have.

So...

Going back to your first part of the question, in the past year, the real federal funds rate has declined by 250 basis points.

Of that, 150 basis points have been reductions in the nominal interest rate to provide insurance to the labor market and to get ahead.

of any deterioration in it and to keep the labor market around full employment.

And about 100 basis points of the decline in the real federal funds rate has been looking through the rise in expected inflation, mostly due to tariffs.

So that's how I think about monetary policy right now.

Not necessarily.

I don't hear that from companies.

Companies often are more concerned about non-interest costs that are increasing.

For example, I mentioned insurance, but raw material costs and other costs.

to produce things all the way from building homes to producing manufactured goods.

And so I hear more about that than about interest costs being something that needs to be passed on to consumers.

So it's very important that we continue to focus on bringing inflation back down towards 2%.

As Chair Powell said, there's no risk-free path.

And, you know, if we focus too much on the labor market and then cut too aggressively, we're going to have an undesired outcome on the inflation side.