Fed/Musalem: We're Approaching the Inflation Target, but Recent Data Signals Increased Risk

Louis Fed President Alberto Musalem stated that despite price pressures converging toward the Federal Reserve's 2% target, recent data increases the risk of a slowdown or reversal in progress. Musalem said, "Based on current information, my baseline scenario expects inflation to converge toward 2% in the medium term," adding that this situation would allow the Fed to continue lowering interest rates "reasonably and patiently." He noted that "the latest information suggests that the risk of inflation’s convergence toward 2% stopping or rising further has increased, while the risk of undesirable deterioration in the labor market has either remained unchanged or likely decreased," emphasizing ongoing solid growth and a largely healthy job sector. Although Musalem expressed caution regarding the potential for increased layoffs in the future, he indicated that the overall strength of the economy provides some confidence that a disorderly deterioration in the labor market is unlikely.