Federal Reserve (Fed) Bank of St. Louis President Alberto Musalem hit the wires hard on Wednesday, adding his voice to a growing chorus of Fed policymakers who are flashing warning signs on ham-handed tariff policies from the Trump administration that are knocking the stable US economy for a loop and pushing both uncertainty and inflation factors higher. With economic unease on the rise, it is getting harder for the Fed to accurately forecast the US economy's trajectory, making it more difficult for the Fed to deliver rate cuts that US President Donald Trump insists he wants.
There are risks that inflation will stall above 2% or move higher in the near term appear to have increased.
Growth does appear to have slowed, surveys point to caution among businesses and consumers.
My baseline is for economy and job market to remain strong, and for inflation to fall.
If the the labor market remains strong and second round tariff effects become apparent, fed may need to keep rates higher for longer or consider more restrictive policy.
Patience with current policy appropriate as the Fed gathers evidence inflation is returning to target.
The labor market is at or close to full employment.
It's appropriate for policy to remain where it is given inflation above target.
Growth will be healthy even if it moderates; no urgency to lower interest rates.
The net effect of Trump policies is still uncertain.
It's probable in the near term that inflation will be higher than expected and that growth will be lower than expected.
That situation presents some challenges for monetary policy given possible tension between mandates.
If expectations start to shift higher, the Fed may have to lean more towards its inflation mandate.
Small businesses say they're holding off on hiring and investing.
Stagflation is a more extreme situation than what the US might go through in the coming months.
I do not see recession on the horizon.
I expect inflation back to 2% by 2027.