Bloomberg Talks – "Fed's Alberto Musalem Talks US Economy, Labor"

Date: November 10, 2025
Host: Michael McKee
Guest: Alberto Musalem, President of the St. Louis Fed

Episode Overview

This episode features a wide-ranging interview with Alberto Musalem, President of the St. Louis Federal Reserve, focusing on the current state of the U.S. economy, ongoing labor market dynamics, inflation challenges, and monetary policy strategy. Musalem provides insights from his district, discusses concerns over consumer debt, responds to questions about future rate cuts, and considers the risks of policy moves amidst economic uncertainty.

Key Discussion Points and Insights

1. Current Economic Snapshot

• Resilient Growth and Labor Market
  Musalem describes the U.S. economy as resilient, with growth near its potential (~1.8% for the year), a labor market at or near full employment, but cooling, and inflation hovering closer to 3% than the Fed’s 2% target.

  • Quote:
    “I see an economy that is has been pretty resilient where growth has been roughly around potential... I see a labor market that... has been cooling... and I see inflation which has been closer to the 3% level than to our 2% target.” — Alberto Musalem, [01:08]

• Data Dependency Amid Uncertainty
  Despite government data delays (due to a shutdown), the Fed relies on private sector data and direct constituent feedback to maintain a pulse on the economy, while emphasizing the importance of official data.

  • Quote:
    “More data is better than less data, so we will learn... But I'm very much looking forward to seeing the official data releases because they are the gold standard.” — Musalem, [01:46]

2. District Insights: Consumption, Debt & Employment

• Consumption Resilience and Divergent Sources
  Companies report steady consumption and growth, but softening in the labor market, evidenced by more applicants per job and compensation growth between 3.5% and 4%.

  • [02:26-02:48]

• Debt Uptick Among Lower-Income Households
  Consumption growth is similar between high- and low-income households, but the former draw on wealth effects (stocks, property), while the latter increasingly rely on credit—especially credit card debt.

  • Quote:
    “Higher income households are consuming from the wealth effects... lower income folks are taking on more debt. They're taking on more credit card debt...” — Musalem, [03:03]

• Risks of Over-Indebtedness
  While rising subprime and credit card defaults have recently stabilized, Musalem expresses concern for the “hand to mouth” households most vulnerable to financial strain.

  • Quote:
    “At the lower end of the income spectrum you always have to worry that... those consumers who live... hand to mouth... could be strained.” — Musalem, [03:43]

3. Business Environment and Pricing

• Operating Amid Higher Uncertainty
  Businesses now see uncertainty as the “new normal” and have adapted to operate within it.

  • [04:47]

• Passing on Higher Costs
  Input costs, especially from tariffs and insurance, are increasingly difficult to pass through to consumers—upstream firms manage better, but consumer-facing ones face pushback.

  • Quote:
    “Companies that are closer to the consumer... are having more difficulty in passing things on because they are facing some... pushback from the final buyer.” — Musalem, [04:47]

4. Labor Market Cooling and Structural Shifts

• Layoffs vs. Overall Labor Cooling
  While layoff announcements have increased, data on weekly jobless claims remain stable, so Musalem does not see immediate labor market deterioration.

  • [05:51-06:31]

• Monetary Policy’s Limits and Role in Transition
  Musalem recognizes traditional limits of monetary policy on supply-side labor issues but suggests the Fed should consider its role amid structural economic transitions.

  • Quote:
    “If the economy is going through a structural transition, what role does monetary policy need to play in facilitating that transition?” — Musalem, [06:40]

5. Monetary Policy Outlook and Risks

• Insurance Cuts and Outlook
  Over the past year, the real federal funds rate declined by 250 basis points—150bps from nominal reductions (insurance against labor risks), and 100bps from accommodating expected inflation driven by tariffs.

  • Quote:
    “In the past year the real federal funds rate has declined by 250 basis points... 150... reductions in nominal interest rate... 100... looking through the rise in expected inflation mostly due to tariffs.” — Musalem, [07:29]

• Companies’ Concerns: Input Costs vs. Interest Costs
  Businesses are more worried about noninterest cost increases (insurance, raw materials) than interest rates as factors affecting prices and employment.

  • [08:46]

• Balanced Approach Amid Policy Risks
  Musalem reiterates there’s “no risk-free path.” The Fed must balance the risks of cutting too quickly (risk to inflation) versus not cutting fast enough (risk to employment), per its dual mandate.

  • Quote:
    “As Chair Powell said, there's no risk free path... when you have some tension between your two goals, you have to follow a balanced approach.” — Musalem, [09:43]

• December Meeting Policy Stance
  Musalem advocates for caution, indicating “limited room to ease policy further” without becoming overly accommodative; policy is transitioning from modestly restrictive to neutral.

  • Quote:
    “There is limited room to ease policy further without policy becoming overly accommodative... we need to continue to lean against inflation to make sure we bring inflation back down towards our 2% target…” — Musalem, [10:22]

• Household Strains from Inflation
  Musalem notes an increase in households struggling to meet monthly expenses, with rising demand for food pantries and utility aid, reinforcing the urgency of restoring price stability.

  • Quote:
    “People are having more month than money... requests for utility assistance, probably related to higher electricity prices... it's really important that we bring inflation back towards 2% to allow households to catch up with our real incomes.” — Musalem, [10:22]

6. Asset Prices and Financial Stability

• Elevated Asset Valuations
  Musalem acknowledges financial conditions as “very accommodative,” with the Fed’s stability report noting elevated house and stock prices, reflecting easy money rather than a particular endorsement of valuations.
  • Quote:
    “Asset valuations are notable... house prices seem elevated... stock prices seem elevated. And to me, it's just the flip side of accommodative financial conditions.” — Musalem, [12:01]

Notable Quotes by Timestamp

| Timestamp | Speaker | Quote | |-----------|---------|-------| | 01:08 | Musalem | “I see an economy that is has been pretty resilient… inflation which has been closer to the 3% level than to our 2% target.” | | 01:46 | Musalem | “More data is better than less data… But I'm very much looking forward to seeing the official data releases because they are the gold standard.” | | 03:03 | Musalem | “Higher income households are consuming from the wealth effects... lower income folks are taking on more debt.” | | 03:43 | Musalem | “At the lower end of the income spectrum you always have to worry that... those consumers who live... hand to mouth... could be strained.” | | 04:47 | Musalem | “Companies that are closer to the consumer... are having more difficulty in passing things on because they are facing some... pushback from the final buyer.” | | 06:40 | Musalem | “If the economy is going through a structural transition, what role does monetary policy need to play in facilitating that transition?” | | 07:29 | Musalem | “In the past year the real federal funds rate has declined by 250 basis points... 150... reductions in nominal interest rate... 100... looking through the rise in expected inflation mostly due to tariffs.” | | 09:43 | Musalem | “As Chair Powell said, there's no risk free path... when you have some tension between your two goals, you have to follow a balanced approach.” | | 10:22 | Musalem | “There is limited room to ease policy further without policy becoming overly accommodative... we need to continue to lean against inflation to make sure we bring inflation back down towards our 2% target…” | | 12:01 | Musalem | “Asset valuations are notable... house prices seem elevated... stock prices seem elevated. And to me, it's just the flip side of accommodative financial conditions.” |

Memorable Moments

• Musalem’s straightforward assessment of household distress:

  “People are having more month than money increasingly... folks are increasingly going to food pantries, including middle income folks.” [10:22]

• On the Fed’s approach under “no risk-free path”:

  “You have to follow a balanced approach, which is to steer monetary policy to attend to both goals." [09:43]

Key Timestamps for Important Segments

• [01:08] – Musalem outlines the economic landscape.
• [02:26] – Business and labor market conditions in the St. Louis Fed district.
• [03:03] – Concerns over consumer debt among lower-income households.
• [04:47] – Challenges businesses face in passing on higher costs.
• [05:51] – Discussion on recent layoffs and labor market trends.
• [06:40] – The Fed’s role amid structural economic change.
• [07:29] – Musalem details rationale behind past interest rate cuts.
• [10:22] – Musalem summarizes his current policy stance and household financial stress.
• [12:01] – Risks of elevated asset prices and Fed’s financial stability concerns.

Tone and Style

Musalem is measured, data-driven, and cautiously pragmatic throughout. His answers acknowledge uncertainties and risks but avoid alarmism. The conversation remains accessible, favoring clear explanations over jargon, yet respects the complexity of monetary policy decisions.

Summary

This episode offers rich, context-driven insight into the thinking of a key Federal Reserve policymaker. From district-level business and labor reports to broader monetary policy strategy, Musalem stresses the importance of balanced action, caution amid uncertainty, and the real-world impacts of inflation on American households—even as the markets rally and asset prices remain elevated. An essential listen for anyone seeking an informed, nuanced perspective on the U.S. economic outlook and the Fed’s evolving stance.