St. Louis Fed President: Risks of rising inflation and weakening job market coexist, monetary policy needs to remain vigilant.

President of the Federal Reserve Bank of St. Louis, Musallem, stated on Friday that there is a risk of rising inflation and a weak labor market occurring simultaneously in the near future. The Federal Reserve must be highly vigilant in formulating monetary policy and closely monitor changes in economic data. Musallem made these remarks at an event in Hot Springs, Arkansas, emphasizing the high level of uncertainty in current trade, immigration, fiscal, and regulatory policies. These factors make it difficult to predict their comprehensive impact on prices, employment, and overall economic activity. He pointed out, "We must take seriously the possibility of rising inflation alongside a weakening labor market." He reiterated that some tariff policies may have a lasting impact on inflation, so it is important to pay special attention to the stability of inflation expectations. He stated, "In the current situation, maintaining vigilance, carefully analyzing upcoming data releases, and assessing the risks facing employment and inflation prospects are still appropriate for monetary policy formulation." Musallem believes that the U.S. economy will continue to expand, but at a more moderate pace. While most long-term inflation expectations indicators are still anchored around the Fed's 2% target, excluding the University of Michigan survey data which shows a slight increase in public inflation expectations. He emphasized, "Maintaining stable inflation expectations is key to the Fed's control of inflation." As the Trump administration recently raised tariffs and may trigger retaliatory measures from trading partners, several Fed officials have stated their readiness to maintain interest rates unchanged to mitigate the ongoing inflation risks from tariff policies. Musallem specifically mentioned that if trading partners impose retaliatory tariffs on the U.S., coupled with the current tightening financial environment and policy uncertainty, it will pose downside risks to the U.S. economy and employment. He stated, "Ensuring anchored inflation expectations will help the Fed take more flexible policies in balancing employment and price stability."