Fed's Musalem (2028 voter, hawk) says inflation is almost a full percentage point above target and the labour market cooling in an orderly way
Importance
Level 1
- Base case outlook is economy grows at or above 2%.
- Financial conditions are accommodative, there is deregulation, and fiscal tailwinds
- Half of the excess inflation is from tariffs, which will fade as the year progresses.
- Job market is vulnerable to an increase in layoffs, not his base case but it could happen
- Inflation could stay higher for longer, this is not his baseline.
- Policy is neutral now in real terms.
- Policy is balancing appropriately
- Government shutdown may have biased CPI downward, and could stay that way through April; PCE inflation is a better gauge
- Bringing inflation down to target will help with consumption and growth, and could lower 10-year rate.
- Looking forward to learning what Warsh's priorities might be.
- Expects the Fed's commitment to its dual mandate to continue under a new chair
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