Fed Official Urges Caution Amid Inflation Concerns
St. Louis Fed President Alberto Musalem expressed concerns over inflation on Thursday, amid discussions of higher tariffs and immigration policy changes by the Trump administration.
"We need to monitor economic conditions and the outlook before making further policy adjustments," Musalem stated in a speech to the Economic Club of New York.
While the Fed held rates steady last month after three consecutive cuts, Musalem believes inflation remains a risk. He would like to see more evidence of inflation moving towards the Fed's 2% target before considering further rate cuts.
However, the risk of inflation rising has increased, Musalem noted. If it persists or inflation expectations rise, a more restrictive monetary policy may be necessary.
January's Consumer Price Index (CPI) showed core prices rising 0.4% month-over-month, the largest jump since April 2023, and 3.3% year-over-year, a slight increase from December.
Chicago Fed President Austan Goolsbee expects the Personal Consumption Expenditures (PCE) Index, another inflation gauge tracked by the Fed, to be less "sobering" than the CPI.
Atlanta Fed President Raphael Bostic indicated that rate cuts remain possible this year but that the CPI reading has raised questions about the data trend.
Despite weaker retail sales in January, Musalem believes the US consumer remains healthy. However, he is monitoring for potential signs of weakness, including a simultaneous rise in inflation and weakening employment.
Musalem's comments align with the Fed's current stance of caution amid uncertainty surrounding inflation and economic growth.