Washington (Reuters) – Managers of the American Federal Reserve (Fed) questioned the need for new rate decreases in a high inflation context on Monday, while the new governor Stephen Miran warned that current monetary policy could be too restrictive.

The president of the Fed of Saint-Louis, Alberto Musalem, and his counterpart from the Atlanta Fed, Raphael Bostic, both stressed, in separate declarations, that if the reduction of 25 basic points of interest rates of the Fed at last week’s meeting was appropriate to manage the risk of an increase in unemployment, the reduction in inflation remained a priority.

“I supported the reduction of 25 base points of the FOMC key rate last week as a precautionary measure intended to support the labor market for full employment and to avoid a new weakening,” said Alberto Musalem during a speech in front of the Brookings Institution in Washington.

“However, I think that the room for maneuver for new softening is limited without politics becoming too accommodating, and we should act with caution,” he added.

In an interview with the Wall Street Journal, Raphael Bostic said that the reduction acted last week was the only one he was probably deemed necessary this year, since inflation remains over a percentage point for the Fed’s objective.

“I am concerned about inflation which has been too high for a long time. And for me, I think it is important that we continue to report the importance of this problem,” said Raphael Bostic.

As for a possible decrease in rates at the meeting of the central bank in October, Raphael Bostic, who does not vote on the rate policy this year, says he is not favorable to it today, “but we will see what will happen”.

Stephen Miran, a new governor of the Fed, said Monday that the changes to immigration, tax and regulatory policies should lower underlying interest rates in the United States and make current monetary policy far too restrictive compared to what the economy needs to maintain inflation at its target level.

“The result is that monetary policy is well engaged in a restrictive phase. Maintain short-term interest rates at an overly high level of approximately two percentage points is likely to cause unnecessary layoffs and an increase in unemployment,” he said in a speech prepared for the Economic Club of New York.

The Fed, as expected, reduced its guiding rates last Wednesday by a quarter of percentage and indicated that it gradually lower its loan costs for the rest of the year, in a context of fears of a weakening of the labor market.

However, Stephen Miran opposed this decision, believing that a drop in 50 base points was more appropriate, and also planned decreases of half a percentage during the next two Fed meetings, a projection which, according to him, “diverges from those of the other members of the FOMC”.

Sephen Miran, who joined this month the Council of Governors of the Fed after being proposed to this post by President Donald Trump, argued that his colleagues had not taken into account the way in which the political changes in the White House, in particular customs rights, the hardening of migration policy and deregulation, reduced the so-called “neutral” interest rate.

Difficult to estimate, the so -called “neutral” interest rate is the level that does not encourage expenditure or investments, and does not restrict economic activity in order to mitigate prices.

The comments of Stephen Miran, Alberto Musalem and Raphael Bostic reflect the current debate to the Fed on the scale and speed of the necessary adjustments of interest rates.

Alberto Musalem, who votes on the rate policy this year, said that he still thought that the risk of inflation above the Fed objective meant that the benchmark interest rate should remain high enough to compensate for the risk of pricing.

“Monetary policy should continue to oppose the persistence of inflation greater than the objective set,” he said.

If there are risks for the unemployment rate, unless they start to materialize, “give too much importance to the labor market […] could do more harm than good, “he said.

(Written by Howard Schneider; Diana Mandia, edited by Kate Entringer)

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