Fed's Musalem: Current restrictive policy is in the right place given data
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Key points:
- Fed needs to balance inflation and jobs goals going forward
- There's a risk tariffs could cause a persistent inflation rise
- Expects inflation to ebb back to 2% by the second half of 2026
- Jobs market break even is between 30-80K per month
- Uncertainty lifting for economy, fiscal policy may add stimulus
- Sees modest GDP growth this year before returning to trend in 2026
- Sees job market holding near full employment
- Expects job market cooling with downside risks to labor sector
- Expects tariff inflation impact to fade eventually
- Tariffs will work through economy over 2-3 quarters
He is incrementally less hawkish and outlines it here:
What I worry about with tariffs is that we get 2-3 quarters of inflation on this round of tariffs and then Trump blows on NAFTA next year and that creates a fresh inflation shock. At that point does it become persistent and boost inflation expectations?
More:
- Anecdotal information is very important
- Fed structure helps protect policy decisions from politics
This article was written by Adam Button at investinglive.com.