St. Louis Fed's Musalem Would Have Backed July Rate Hike but Keeps September Options Open as Trump Pressures Fed and Treasury Acts on Bonds

St. Louis Federal Reserve President Alberto Musalem said on August 20 that he would have favored raising interest rates at the Fed's July meeting, though he was not a voting member at the time. Musalem declined to signal a clear preference for the September FOMC meeting, saying he has no strong opinion on the outcome and will not make assumptions about the next decision.

He also stressed that the Fed aims to keep monetary policy separate from fiscal policy, and noted that forward guidance is most useful when rates are near zero. His remarks came as the US national debt crossed $40 trillion and President Trump renewed public pressure on the Fed to cut rates. Separately, the Treasury Department announced it would double its purchases of longer-dated bonds beginning September 9 through November 4, a move aimed at providing liquidity support and containing borrowing costs in long-dated Treasuries.

The announcement pushed the 30-year yield down from about 5.26 percent to as low as 5.18 percent and the 10-year yield from 4.68 percent to as low as 4.63 percent. The July FOMC meeting ended with rates held steady but saw three regional presidents dissent in favor of a hike, the most dissents since September 2016, complicating the outlook for September as incoming data continues to shift the picture.