St. Louis Fed President Alberto Musalem said today that the current “modestly restrictive” policy rate is consistent with full employment and core inflation still nearly one percentage point above target.
He warned, however, that a variety of labor indicators—including upward moves in unemployment measures and downward revisions to jobs data—have increased the risk of a sharper slowdown ahead.
While the job markets in is full employment, he said, “I expect the labor market to gradually cool and remain near full employment with risks tilted to the downside.” On the inflation outlook, Musalem argued that tariff-driven price pressures will be short-lived, fading over the next two to three quarters.
With growth running below trend and inflation expectations steady, he sees little chance of a lasting inflation shock. Still, he cautioned that there is a “reasonable possibility” that above-target inflation could persist longer than desired. He expects inflation to resume its convergence toward 2% in the second half of 2026.
“I will continue to update my outlook and my assessment of the balance of risks to seek a forward-looking path of interest rates that best positions monetary policy for achieving and maintaining maximum employment and price stability for all Americans,” he said.
