Alberto Musalem, president and CEO of the Federal Reserve Bank of St. Louis, spoke with the New York Economic Club in New York City, USA on February 20, 2025.
Brendan McDermid | Reuters
WASHINGTON – The risk of higher inflation is increasing, St. Louis Federal Reserve General President Albert Musalem said Monday.
In his keynote speech at the National Association of Business and Economics Conference, Musalem noted that his baseline incident was that inflation gradually moved towards the central bank’s 2% target. This scenario requires that inflation expectations remain fixed and stable, he noted.
However, “the expectations of short-term inflation have risen significantly over the past few weeks, and that’s something I’ve seen a lot,” Musalem added.
In fact, the February reading on the Conference Committee’s Consumer Trust Index reflects the largest month’s decline since August 2021, as inflation expectations rise. The manufacturing PMI of the Institute for Supply Management also showed a sharp rise in prices within the sector that month.
“Businesses and households are clearly sensitive to expectations for higher inflation,” Musalem said. “That’s why the risk appears to be upside down, but the baseline is due to continuous divergence.”
Investors are coming in 2025 and hope that the Fed will lower prices than this year. However, the central bank maintained its rates in the current 4.25%-4.5% range after its January meeting.
CME Group’s FedWatch tool also shows that traders are priced at 93% of the chances they will maintain interest rates at their current levels at the central bank’s March meeting.
Musalem’s remarks arise as investors support tariffs on imports from China, Mexico and Canada. It will be difficult for the Fed to ease rates in the future as many people worry that taxation will raise prices.
