Stay informed with free updates

Simply sign up to the US interest rates myFT Digest — delivered directly to your inbox.

A top Federal Reserve official said the US central bank should revert to cutting interest rates “gradually”, after a larger than usual half-point reduction earlier this month.

St Louis Fed president Alberto Musalem said the US economy could react “very vigorously” to looser financial conditions, stoking demand and prolonging the central bank’s mission to beat inflation back to 2 per cent.

“For me, it’s about easing off the brake at this stage. It’s about making policy gradually less restrictive,” Musalem told the Financial Times on Friday. He was among officials to pencil in more than one quarter-point cut for the remainder of the year, according to projections released at this month’s meeting.

The comments from Musalem, who became the St Louis Fed’s president in April and will be a voting member on the Federal Open Market Committee next year, came less than two weeks after the Fed lopped half a percentage point from rates, forgoing a more traditional quarter-point cut to kick off its first easing cycle since the onset of Covid-19 in early 2020.

The jumbo cut left benchmark rates at 4.75 per cent to 5 per cent — a move that Fed chair Jay Powell said was aimed at maintaining the strength of the world’s largest economy and staving off labour market weakness now that inflation was retreating.

On Friday, the Fed’s preferred inflation gauge fell more than expected to an annual rate of 2.2 per cent in August.

Musalem, who supported the cut in September, acknowledged that the labour market had cooled in recent months, but remained positive about the outlook given the low rate of lay-offs and underlying strength of the economy.

The business sector was in a “good place” with activity overall “solid”, he said, adding that mass lay-offs did not appear “imminent”. Still, he conceded the Fed faced risks that could require it to cut rates more quickly.

“I’m attuned to the fact that the economy could weaken more than I currently expect [and] the labour market could weaken more than I currently expect,” he said. “If that were the case, then a faster pace of rate reductions might be appropriate.”

That echoed comments from governor Christopher Waller last week, who said he would be “much more willing to be aggressive on rate cuts” if the data weakened more quickly.

Musalem said the risks of the economy weakening or heating up too quickly were now balanced, and the next rate decision would depend on data at the time.

The Fed’s latest “dot plot” showed most officials expected rates to fall by another half a percentage point over the course of the two remaining meetings of the year. The next meeting is on November 6, a day after the US presidential election.

Officials had a wide range of views, however, with two of them signalling the Fed should hold off on more cuts, while another seven forecast only one more quarter-point cut this year.

Policymakers also expected the funds rate to fall another percentage point in 2025, ending the year between 3.25 per cent and 3.5 per cent. By the end of 2026, it was estimated to fall just below 3 per cent.

Musalem pushed back on the idea that September’s half-point move was a “catch-up cut” because the Fed had been too slow to ease monetary policy, saying inflation had fallen far faster than he had expected.

“It was appropriate to begin with a strong and clear message to the economy that we’re starting from a position of strength,” he said.

The Justice Department on Friday unveiled criminal charges against three Iranian hackers employed by Iran’s Revolutionary Guard Corp. for targeting and compromising the electronic accounts of Trump campaign aides and others.

The indictment alleges the hacking is part of Iran’s effort to erode confidence in the U.S. electoral process ahead of the November presidential election.

Attorney General Merrick Garland, speaking at a press conference on Friday, said the U.S. government is tracking various plots by Iran to harm American officials, including former president and current Republican presidential nominee Donald Trump.

“These hackers impersonated US government officials, used the fake personas they created to engage in spearphishing, and then exploited their unauthorized access to trick even more people and steal even more confidential information,” FBI Director Christopher Wray said on Friday, according to his prepared remarks.

The FBI had been investigating after the Trump campaign last month said it had been hacked and suggested Iran was involved, without providing specific evidence for that.

The three men are accused of wire fraud; conspiracy to obtain information from protected computers; and material support to a terrorist organization.

Garland said both the Trump and Harris campaigns have been cooperating with the investigation.

The defendants are outside the reach of the U.S. and it’s not clear when, if ever, American authorities may be able to arrest them.

Several technology companies have also been monitoring and reporting on hacking threats to the U.S. from foreign countries, including Iran.

Google Threat Intelligence Group’s John Hultquist said Iran’s attacks are constantly evolving.

Hackers from the Iranian Revolutionary Guard “regularly assume the guise of hacktivists or criminals and have increasingly targeted random individuals through email and even text messages,” he said in a statement.

“Most of this activity is designed to undermine trust in security, and is used to attack confidence in elections in particular.”