(Reuters) -St. Louis Federal Reserve President Alberto Musalem on Friday said he sees possible room for one more interest rate cut to shore up the labor market, but urged caution because inflation remains "materially" above the U.S. central bank's 2% target.

"I am open-minded about a potential further reduction in interest rates to provide further insurance against labor market weakening," Musalem said, noting that he supported the Fed's quarter-percentage-point rate cut last month.

But, Musalem added, "I believe that we have to tread with caution because there's limited room for further easing before monetary policy could become overly accommodative, and I believe that monetary policy should continue to lean against persistence in inflation."

Speaking to the Community Banking Research Conference and Springfield Area Chamber of Commerce in Missouri, Musalem said he expects U.S. economic growth to be healthy in the fourth quarter and to run at or a bit above its long-run potential next year, bolstered by robust consumer spending thanks in part to lower interest rates.

Some groups like Hispanics are slowing spending, he said, and lower- and middle-income households are maintaining their spending only through borrowing.

Musalem said he learned from a recent meeting with community development practitioners that those spending habits are not due to "employment or unemployment - it's because prices are high; it's inflation" eating at their real wages and reducing their purchasing power.

"That drove home for me that it's really important for us to achieve our 2% price stability or inflation goal to support consumption," he said.

The Fed is widely expected to deliver quarter-percentage-point rate cuts at its October 28-29 and December 9-10 policy meetings.

Musalem made clear he isn't sold on that idea.

He said he feels the Trump administration's tariffs are only responsible for about 10% of the current rate of inflation, and that he expects their effect to dissipate by the middle of 2026, allowing inflation to head back to the Fed's 2% target. Musalem expects the labor market "to continue to soften some going forward in an orderly way, with the supply and demand both muted."

But that's only a baseline, he said, and there are risks that inflation could be more persistent, or that the labor market could weaken more than expected - one reason that he does not rule some more "insurance" in the form of another reduction in borrowing costs.

Still, he said, the Fed should be careful, especially in light of the stock market rally in recent months.

"I now perceive monetary policy as somewhere between modestly restrictive and neutral, and I see, when I look out the window, financial conditions and financing conditions which are very accommodative of the growing economy," he said.