Inflation Concerns Prompt Fed Officials to Monitor Conditions
St. Louis Fed President Alberto Musalem has expressed concerns about inflation amid talk of higher tariffs and immigration policy changes. He believes it is prudent to monitor economic conditions before making further policy adjustments.
The Fed held rates steady last month after consecutive cuts, indicating a cautious stance on inflation. While rates are considered "modestly restrictive," Musalem seeks greater assurance that inflation is trending towards the 2% target before considering further easing.
However, he acknowledges that the risk of stalled inflation progress has increased. If higher inflation persists or long-term inflation expectations rise, a more restrictive monetary policy path may be necessary.
Musalem emphasizes the importance of core CPI data, which excludes volatile food and gas costs. A higher-than-expected core CPI reading in January suggests increased likelihood of the Fed maintaining rates in the near future.
Chicago Fed President Austan Goolsbee expects a less "sobering" PCE inflation reading next week. Atlanta Fed President Raphael Bostic indicates that rate cuts remain a possibility this year, but the recent CPI data raises questions about a potential trend.
Markets have adjusted expectations, reducing the forecast of 2025 rate cuts to one later in the year. Bostic believes the Fed has not eased too much and that a restrictive posture is still necessary.
Despite weaker retail sales and Walmart's guidance, Musalem expresses confidence in the health of the US consumer. He remains vigilant for signs of weakness and monitors the potential for simultaneous inflation and employment weakness.