Fed's Musalem: There is more work to do on inflation

St. Louis Federal Reserve 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.