MNI BRIEF: Musalem: Fed Well Positioned To Respond To Risks

St. Louis Fed President Alberto Musalem said Thursday the Fed is well-positioned to respond to a softening labor market or higher inflation and should wait and see how the U.S. outlook evolves. 

"The economy is in a good place. The labor market is at around full employment. It has some downside risks, but it's looking stable and good. Inflation is running slightly above, somewhat above, our target. There are some upside risks to inflation. Looking ahead, monetary policy is modestly restrictive and financial conditions are supportive of growth," Musalem said at an OMFIF event.  

"Policy is well-positioned to respond to labor market weakness, undesired labor market weakness, provided underlying inflation can be expected to continue to converge towards 2% and inflation expectations remain anchored," the St. Louis Fed chief said. (See: MNI INTERVIEW: Bostic Backs Go-Slow On Rates As Tariffs Linger) 

Musalem said it's too soon to tell whether the Trump administration's tariff policies will have a temporary or more persistent effect on inflation. "It's going to take time for the tariffs to settle, what people are actually paying. And therefore, how they're passing through," he said. "There's a scenario where we could be in Q4 this year, or Q1 or Q2 of next year, and tariffs are still working themselves for the economy."