MNI BRIEF: Fed's Musalem Sees Risks In Tariff Look-Through

St. Louis Fed President Alberto Musalem said Friday the current state of policy is well-positioned to deal with risks, but sounded a hawkish note in warning that a look-through strategy with regards to tariffs may not end up being appropriate this time. 

"Monetary policy is currently well positioned, given the state of the economy and the balance of risks. Uncertainty about the net effects and timing of new trade, immigration, fiscal and regulatory policies on prices, employment and economic activity is high, and a scenario in which inflation rises while at the same time the labor market softens, is a distinct possibility that must be considered at this time," he said. 

"I believe, continued vigilance, careful monitoring of economic data and thorough assessment of the outlook and risk for employment and inflation remain remain appropriate for monetary policy," Musalem added at an event in Hot Springs, Arkansas. 

"A 'textbook' view is that monetary policymakers should 'look through' price increases associated with high tariffs because they are likely to have only a brief and limited impact," he said. "However, there are challenges and risks with a look-through strategy. Changes in tariffs can have various direct and indirect effects on prices and economic activity, depending on how they are implemented and the extent of retaliation by trading partners."