St. Louis Fed President Alberto Musalem said on Thursday that the Federal Reserve still needs to raise interest rates further in order to bring U.S. inflation back to its 2% target in a timely manner. However, he did not explicitly endorse action at the monetary policy meeting later this month, stressing that future rate decisions will continue to depend on economic data.

Speaking at an event in New York that day, Musalem said: "In order to bring inflation back to target in a timely manner, monetary policy still needs to be tightened further." He further explained that if the Fed hopes to bring inflation down to 2% in about 18 months, it may need to continue raising rates at appropriate times over the next 6 to 9 months.

When asked whether the Fed should raise rates at its October 27-28 meeting, Musalem did not give a clear answer. He said: "I go into every meeting with an open mind, without prejudging what the meeting will decide, and without pre-deciding what position I will take."

Musalem also emphasized that, from an overall directional standpoint, the current inflation situation still requires the Fed to consider further monetary tightening. It is worth noting that Musalem is not a voting member of the Federal Open Market Committee (FOMC), which sets interest rate policy this year, but his remarks still reflect concerns within the Fed about inflation pressures and the need for future rate hikes.

The Fed implemented a rate hike at its September 15-16 meeting, raising the target range for the federal funds rate to 3.75% to 4.00%, marking the central bank's first rate increase in three years. Rate projections published by officials at the time also showed that one more rate hike was expected before the end of the year.

However, market expectations for the timing of the next rate hike have shifted recently. Previously, traders once believed the Fed was likely to continue raising rates in October. But New York Fed President Williams said last week that the Fed did not need to rush to act while it assesses the latest economic data. Subsequently, Fed Vice Chair Jefferson also said there was no urgent need for an immediate rate hike. Affected by these remarks, the market now generally expects the Fed to keep rates unchanged at its October meeting and to postpone the next rate hike until December.

Regarding the U.S. economic outlook, Musalem believes that against the backdrop of strong economic growth and a broadly stable job market, inflation remains the top issue facing the U.S. economy. He said the Fed is expected to further reduce inflation without significantly harming the job market, and that bringing inflation back to the 2% target will benefit overall economic performance.

Musalem also pointed out that although U.S. Treasury yields have risen noticeably recently, overall financial conditions remain relatively loose and continue to support economic growth. He believes that rising bond yields do not mean investors are losing confidence in the Fed. Instead, they more reflect market expectations of higher real interest rates and increasingly intense competition for funds in a strong economic environment.

Musalem specifically mentioned that continued investment expansion in the technology sector and the U.S. government's enormous financing needs are both important factors supporting bond yields at high levels. As capital spending in areas such as artificial intelligence continues to increase, technology companies' demand for funds continues to grow. At the same time, the U.S. government's large-scale borrowing to meet fiscal spending needs has further intensified supply-demand pressure in funding markets.

When discussing the U.S. fiscal situation, Musalem issued a warning, saying that the federal government's long-term fiscal path is unsustainable. He said: "For most of the past nearly 20 years, the U.S. federal government has been on an unsustainable fiscal trajectory." Musalem pointed out that the government's continued maintenance of high levels of borrowing could bring risks to the U.S. economy. Although no obvious market confidence crisis has emerged yet, the massive government financing demand is still worth watching closely.