Fed’s Musalem says he has lowered the probability of the baseline scenario and increased the likelihood of alternative scenarios; US economy was already overheated during the 2022 oil price shock and did not overheat now
- Fed needs to stay vigilant on supply shocks and inflation, noting this is the fourth supply shock in five years.
- Lower labour force and population growth could limit US economic growth.
Context
Musalem's comments suggest a shift in the Fed's stance, signaling caution around inflation and potential supply shocks, especially given repeated disruptions in recent years. His emphasis on lower labor force growth indicates a more complex economic outlook, which could influence rate decisions and market expectations, particularly regarding the dollar and fixed income markets.
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