In conversation with Alberto Musalem | LSE Event

Effective central bank communication requires articulating a clear framework for how policy decisions respond to incoming data, rather than relying on specific forward guidance. Alberto Musalem, President of the Federal Reserve Bank of St. Louis, emphasizes that transparency regarding the "how and why" of policy fosters smoother transmission, anchors public expectations, and strengthens institutional accountability. While artificial intelligence offers potential for future productivity gains, current macroeconomic data remains unremarkable, necessitating policy decisions grounded in present economic conditions rather than speculative growth. Furthermore, the prevalence of recurring supply shocks renders the traditional "look through" strategy ineffective. Instead, policymakers must adopt a balanced approach to the dual mandate of price stability and maximum employment, as persistent inflation pressures and the risk of de-anchored expectations demand a systematic, predictable response to evolving economic scenarios.