Investing.com -- Federal Reserve Bank of St. Louis President Alberto Musalem said Wednesday that risks are rising to both inflation and employment, and officials should be prepared to adjust interest rates in either direction depending on how the economy evolves.

"Policy is well positioned to address risks to both dual mandate objectives, and I expect the current setting of the policy rate will remain appropriate for some time," Musalem said in remarks prepared for an event in Washington. "However, I will support adjustments in the stance of policy if the evidence indicates the economy requires them."

Musalem said he supported the central bank's decisions to hold interest rates steady so far this year. His base case is a scenario in which the unemployment rate remains stable around current levels, the economy grows close to potential and underlying inflation begins to gradually decline toward 2% later this year.

He could favor lowering rates if the labor market deteriorates and inflation doesn't rise, or if inflation falls. But he would also support raising rates "if core inflation or medium- to long-term inflation expectations moved persistently higher and away from 2%."

"Allowing inflation expectations to become unanchored would risk not only higher inflation but also slower growth and a weaker labor market," he said.

Rising oil prices sent average US gasoline prices above $4 a gallon this week for the first time since August 2022. The increase has squeezed households and dented consumer sentiment.

Fed officials are evaluating how a surge in energy prices caused by US-Israeli strikes on Iran will hit inflation and the economy. Fed Chair Jerome Powell said Monday that policy was in a good place for officials to wait and see what the effects will be.

Policymakers held their benchmark rate steady last month for the second consecutive meeting and investors now expect rates to remain unchanged for the rest of the year, according to pricing in federal funds futures contracts.