Fed member warns about inflation: "Customs tariffs could create lasting price pressure."

Alberto Musalem, President of the St. Louis Fed, recently noted that the likelihood of inflation in the U.S. remaining above the Fed's 2% target has increased. He emphasized that new trade policies and import tariffs could worsen this situation, highlighting that the impact of tariffs on inflation might not be merely temporary.

Musalem pointed out that while import tariffs have a direct short-term effect on prices, their long-term implications could emerge if inflation expectations settle in. This could prompt the Fed to reassess its monetary policy stance. He stated that if the economy remains strong and inflation exceeds 2%, the current modestly restrictive monetary policy would continue until price stability is achieved. Additionally, he warned that if the second-round effects of rising import tariffs become pronounced, the Fed might need to adopt a tighter monetary policy, although he stressed this scenario is not the Fed's primary expectation.