The Fed’s Musalem is speaking and says:
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Fed’s goals are in tension
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Inflation running high, labor market showing signs of potential weakness
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Balanced approach on monetary policy only works if inflation expectations are anchored
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Less able to respond to short-term labor market fluctuations if inflation expectations become unanchored
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Right now inflation expectations a little elevated up to 2 years out
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Long-term inflation expectations are anchored
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inflation materially above target.
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Labor market looks at full employment, could we get
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Expect tariff impact on inflation to fade by 2nd half of 2026.
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Only 10% of inflation we are seeing is tariffs
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Expects labor market. In some orderly way
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prices to stop increasing due to tariffs after mid 2026.
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There are material risks around baseline expectations.
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Inflation could rise more, labor market could weaken more.
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Supported September rate cut as insurance against labor market weakening.
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Policy is between modestly restrictive and neutral.
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Financial conditions are accommodative.
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Open-minded on potential further rate cuts as further insurance.
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Believe we should tread with caution.
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Limited room for more easing before policy gets overly accommodative.
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Monetary policy should continue to lean against inflation
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Expects 4Q GDP to be healthy
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GDP growth is likely to be close to potential for the year.
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Data suggst all households are spending.
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Anecdotes shall low income households stretching to do so
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Consumer spending by some groups like Hispanics has softened.
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Cutting back on spending because of inflation, not from job market.
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Really important to achieve 2% inflation goal.
Overall, he’s more dovish than hawkish—willing to cut rates to protect the labor market—but his caution on inflation means he’s not strongly dovish. He’s positioning himself as a measured dove rather than an aggressive one.
This article was written by Greg Michalowski at investinglive.com.