Former St. Louis Federal Reserve President Jim Bullard speaks during the event on Sept. 29. (Courtesy of the Weidenbaum Center)

The President of the Federal Reserve Bank of St. Louis, Alberto Musalem, told members of the WashU community he expects U.S. inflation to decrease after the next 2 to 3 quarters and for the national labor market to remain near full employment while remaining “open-minded to future potential reductions in interest rates.”

Musalem was joined by former Fed President Jim Bullard, who now serves as the Dean of the Mitch Daniels School of Business at Purdue University, and Tom Melzer, who served as the St. Louis Fed President from 1985 to 1998. The panel was moderated by WashU alumnus Karen Branding, who serves as President of the Regional Business Council.

The event titled, “The Past, Present, and Future of the Federal Reserve,” was hosted by the Weidenbaum Center on the Economy, Government, and Public Policy. WashU Chancellor Andrew Martin gave opening remarks on Sept. 29.

“Institutions that effectively serve the public good understand they must be both good neighbors and strong national leaders,” Martin said. “The questions we’re exploring today about economic policy and financial stability affect every American family.”

The event held in Graham Chapel was historic, given this was the first ever public gathering of three St. Louis Fed Presidents. The Federal Reserve Bank of St. Louis is one of 12 reserve banks across the United States which help conduct monetary policy, regulate local banks, gather data, and promote economic development. The St. Louis Fed services the Eighth District, which comprises areas in seven surrounding states.

Musalem, who supported recent interest rate cuts at the last Fed meeting, gave his perspective on the state of the U.S. economy.

“When I look at the economy today, how it looks today, how the balance of risk and outlook looks into the future, I see an economy with inflation running close to 3% into our 2% target, the labor market near full employment, both with some signs of weakening,” Musalem said.

Musalem said he was “open-minded” on future rate cuts but emphasized the need “to tread cautiously.” He also gave his outlook on the near-term changes in unemployment and inflation.

“When I look at the future, my expectation is that inflation will stay elevated for two or three quarters while the tariffs play through the economy, and inflation will begin to convert back towards 2%. I see a labor market that continues to soften, but remains around full employment,” Musalem said.

Musalem also outlined his outlook on the effects of tariffs on inflation, saying that their impact has been “more muted than expected.”

“Tariffs so far have only been responsible for about 10% of inflation, which means that most of the inflation and the persistent above target inflation is driven by things other than tariffs,” Musalem said.

Musalem emphasized the role that interactions with local communities and businesses play in the Fed’s decision making as they provide real-time information about the economy.

“Those anecdotes are really important because they also are forward looking, because those anecdotes become data three to six to nine months in the future,” Musalem said.

The question of Fed independence was also raised by Branding. Bullard, who is considered a potential candidate to become the next Fed chair, expressed a more balanced approach, arguing that the Fed is not “off on some other island,” but emphasized the importance of keeping monetary policy decisions independent from politics in order to maintain stability in financial markets.

“It’s not that you’re totally divorced from politics,” Bullard said. “It’s that you’re trying to keep the process of making these important monetary policy decisions at arm’s length from the day-to-day machinations of inside-the-Beltway Washington.”

Melzer pointed out that previous political pressures on the Fed often came not from the President, but from Congress.

“The Fed is a creation of legislation and is accountable to the Congress, and the chairman testifies twice a year to both House and Senate committees, and it’s often in that format that, you know, that you hear some flak,” Melzer said.

Musalem explained the importance of the Fed’s dual mandate to maintain maximum employment and price stability.

“To me, it’s about maintaining the 171 million people that are in the labor force maximally employed. And it’s about keeping the 340 million people in the country from having their purchasing power of their income or of their savings be eroded away by inflation,” Musalem said.

The panelists also offered some advice to WashU students. Musalem encouraged students to explore the economy and the Fed through tools like the St. Louis Fed’s Federal Reserve Economic Data (FRED). Melzer urged liberal arts students to take classes in economics and finance as they will “serve you well in your life personally.”

Bullard advised students to learn more about how to practically apply AI in order to make themselves more valuable to future employers.

“There are lots of companies out there that have existing groups of employees. Those employees will look to you if you come in with some knowledge about AI, and especially not just the ‘gee whiz’ aspect, but how can you actually use it to actually improve productivity and business processes,” Bullard said.

Exiting the event, many participants said they valued the varied experience of the three presidents and their economic expertise.

“I’m very privileged and honored to share the stage with two former presidents that did so much for the Federal Reserve and for the nation in monetary policy-making,” Musalem said.