St. Louis Fed President Warns of Inflation Risk From Higher Tariffs
Date Posted: March 27, 2025
Posted In: Discussion, News,
From St. Louis Business Journal: The risks that inflation will stall above the Fed’s 2% goal or move higher in the near term appear to have increased, Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said Wednesday.
Musalem said the direct effects of the Trump administration’s tariff increases likely will be one-time price increases that shouldn’t have a persistent impact on inflation, but “indirect, second-round effects” could have a more persistent impact on underlying inflation.
The St. Louis Fed staff has estimated that a 10% increase in the effective U.S. tariff rate could increase the Personal Consumption Expenditures (PCE) inflation rate by as much as 1.2 percentage points. The PCE inflation rate in January was 2.5% year over year.
In a speech Wednesday to business groups in Paducah, Kentucky, Musalem said he would be “uncomfortable” if consumer and business expectations about higher inflation in the medium to longer term begin to rise.
“With inflation already above 2% in a full-employment economy, the stakes are potentially higher than they would be if inflation were at or below target, and if consumers and businesses had not recently experienced high inflation, raising their sensitivity to it,” Musalem said.