St. Louis Federal Reserve (Fed) President Alberto Musalem indicated that he was closely monitoring whether a rise in short-term inflation expectations was seeping into longer-term ones, noting that such a development could complicate efforts to combat inflation and diminish the Fed’s flexibility in addressing labour market weaknesses.
Key Quotes
- Distinct possibility that inflation rises even as labour market softens.
- Appropriate to lean against tariff-induced ‘second-round’ inflation that may be persistent.
- Inflation expectations must remain anchored for a Fed policy that’s responsive to both employment and price stability concerns to be feasible.
- Uncertainty is high, Fed policy is well positioned.
- Downside risks to growth, employment have increased; notable headwinds for labour market.
- Limited progress on inflation since mid-2024; risks of near-term rise have increased; more work to do.
- Closely monitoring whether rise in near-term inflation expectations seeps into longer-term ones.
- Bankers say loan demand softening, see consumer loan portfolios weakening, challenging conditions for agricultural sector.
- Firms say they expect to raise prices due to tariffs, but also report consumers are increasingly price-sensitive.
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