MNI BRIEF: Musalem: Too Soon To Add Trump Plans To Dec Fed SEP
MNI (WASHINGTON) - Federal Reserve Bank of St. Louis President Alberto Musalem said Wednesday he will wait for more concrete details on President-Elect Donald Trump's policy proposals before adding them into his economic forecasts this year.
"It’s too soon to understand the precise contours of any policy proposal, and the December meeting is certainly too soon to incorporate that into my own personal views and forecasts. I’ll wait for more clarity," he told reporters on a call after speaking to a business group in Memphis, Tenn.
Traders have pushed 10-year Treasury yields some 60 bps higher since the Fed began its rate-cutting cycle in anticipation of Trump's promised tax cuts and deficit spending. Musalem said a rise in term premia was a "meaningful" part of the bond market sell-off.
"That increase, as far as I can tell, has been roughly 50-50 between inflation compensation and real risk premiums," he said. "Part of it has been an expectation that policy rates won't decline by as much."
Data since the September rate cut showed the economy is "materially stronger" than it had appeared, with rising inflation risk, he said.
"I would have preferred if services and core CPI had continued to decline on a three-month basis in addition to being stable on a 12-month basis," he said, referring to the morning's October inflation report, which was generally in line with his expectations.
But monetary policy is well positioned and "we're on a path toward neutral," Musalem said. (See: MNI INTERVIEW: Fed Cuts To Continue But Neutral Not Far-Tracy)