Fed's Musalem Warns of Potential Inflation Surge

Federal Reserve Bank of St. Louis President Alberto Musalem has raised concerns about a "distinct possibility" of inflation reaccelerating in the near term. This warning comes despite signs of a softening labor market, highlighting the complex challenges facing the economy.

Challenges Ahead

Musalem pointed out the limited progress on disinflation since mid-2024 and noted that companies are planning to increase prices due to new tariffs. He emphasized the importance of addressing "second-round inflation" effects from these tariffs, which could prove to be persistent.

Economic Concerns

Among the key concerns Musalem flagged are weakening loan demand, deteriorating consumer credit conditions, and growing price sensitivity among households. These factors could significantly impact the economic outlook, according to the Fed official.