Fed’s Musalem: Impact of tariffs on inflation still unclear

St. Louis Fed President Alberto Musalem struck a cautiously optimistic tone on the US economy, noting strength in the labour market but warning of renewed inflation risks.

Key Quotes

The economy is in a good place, with the labour market at or near full employment.

There is some upside risk to inflation.

There have been some positive trends in inflation recently, but the outlook is for it to increase going forward due to tariffs.

It is too soon to tell if tariffs will have a one-off or a more persistent impact on inflation.

A weakening dollar could add to inflation.

Impact of tariffs could be fully felt late this year or early the next one.

It is critical for the Fed to keep long-term inflation expectations anchored.

Anchored expectations are what allow the Fed to be responsive to changes in the labour market.