Fed's Musalem sees '50-50' chance of prolonged inflation in US due to tariffs

The Financial Times reports that Federal Reserve Bank of St. Louis President Alberto Musalem estimates the likelihood of a prolonged rise in US inflation due to Donald Trump's trade policies as “50-50.” The central bank official warned that American companies are going to face uncertainty throughout the summer.

Musalem said that despite forecasts of higher inflation in the country for only one or two quarters, there is also a very realistic scenario of continued elevated price pressures for longer.

Trump's increase in import tariffs and a $2.4 trillion budget bill keep worrying both market participants and the country's central bank. The regulator has been taking a wait-and-see stance after the last rate cut at the end of 2024.

As Musalem believes, Fed officials may benefit from a favorable scenario and a clarification of the US trade and fiscal policy situation in July. This could allow the regulator to continue cutting borrowing costs. 

However, he warns of the difficulty in forecasting the long-term impact of high tariffs on the pace of price growth in the US.