Fed's Musalem: Fed policy should prioritize price stability

Federal Reserve (Fed) Bank of St Louis President Alberto Musalem added his voice to the chorus of Fedspeakers warning that US trade policy under the guidance of the Trump administration is poised to not only weigh on growth, but could also exacerbate price volatility, one of the Fed's favorite stand-in phrases for inflation.

Key highlights

Monetary policy currently well-positioned.

A balanced response to higher inflation and unemployment is feasible if inflation expectations stay anchored.

If inflation expectations become de-anchored, Fed policy should prioritize price stability.

US economy has underlying strength, labor market stable, inflation has eased but above 2% goal.

Economic policy uncertainty is unusually high.

Even after May 12th de-escalation, tariffs likely to lead to labor market softening and higher prices.

Tariffs as likely to have temporary as persistent effect on inflation.

If trade tensions are durably de-escalated, inflation could head back to target, labor market remain resilient, and current monetary policy would remain appropriate.