Fed’s Musalem: Inflation risks are tilted to the upside

On Thursday, St. Louis Fed President Alberto Musalem warned that rising inflation expectations combined with the risk of stubborn stagflation could create a double challenge for the US economy.

Key Takeaways

Assurance inflation is returning to 2% target needed before further policy changes; patient approach appropriate. 

His baseline is for inflation to return to 2%, but risks are skewed to the upside. 

Inflation expectations have moved higher, would make Fed's job more difficult if sustained. 

There are scenarios where progress on inflation stalls or inflation rises alongside a weakening labor market.