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【Federal Reserve's Musalem: Further rate hikes may be needed over the next 6 to 9 months】
Musalem, president of the Federal Reserve Bank of St. Louis, said the Federal Reserve needs to raise interest rates again to bring inflation back to 2%the target level. He said monetary policy needs to tighten further to achieve the inflation target within a “timely” timeframe. Musalem said that if “timely” means approximately 18 months, interest rates may need to be raised further at an appropriate time over the next 6 to 9 months. He said inflation remains the main problem facing the U.S. economy, but economic growth is strong and the labor market remains stable, meaning the Federal Reserve may be able to bring inflation down without significantly harming employment. When asked whether rates should be raised at the October 27 to 28 policy meeting, Musalem said he remains open-minded and has not prejudged the meeting's outcome, but the inflation situation requires policymakers to continue considering further policy tightening. Musalem said that although U.S. Treasury yields have risen significantly, financial conditions remain accommodative and support economic growth. He said the rise in yields does not mean investors have lost confidence in the Federal Reserve, but reflects expectations that real interest rates will rise and increased competition for capital amid strong economic conditions.