While Friday is traditionally a quiet day for earnings and economic data, investors still tuned in earlier this morning to hear what St. Louis Fed President Alberto Musalem had to say about the state of the economy at an event held this morning in Itta Bena, Mississippi.
Musalem defended the Fed's decision to leave interest rates unchanged at the recent Federal Open Market Committee (FOMC) meeting, making the case that he Fed still had work to do to meet its inflation mandate, even if the job market remained strong.
The Consumer Price Index (CPI) was up 0.3% month-over-month and 2.7% year-over-year in June. Economists warn that tariffs could exacerbate the CPI, while American households are bracing for more aggressive inflation in “soft” consumer data.
Musalem says that a “temporary” impact on prices is likely, warning about a “reasonable probability” of longer-lasting price increases.
On the other hand, Musalem said that the labor market was “around full employment,” noting that companies continue to report a “shortage of skilled labor.”
However, Musalem did warn that companies have become more cautious on spending and hiring, noting that tariffs are having an impact on firms. In particular, he said that firms that are closer to the consumers have been seen as more sensitive to raising prices.
Hiring has considerably slowed in recent months as economic activity has stagnated. Jobs data from the Bureau of Labor Statistics have shown virtually no job growth, accounting for revisions, in recent months since the tariff tiff.
What Has Musalem Said About the Economy Before?
Musalem is one of the Fed's newest voices, taking over the St. Louis Fed in Apr. 2024. He replaced Jim Bullard, who left to become the dean of Purdue University's Mitchell E. Daniels, Jr. School of Business.
During his term, Musalem has been vocally hawkish. In Sept. 2024, he argued for a “gradual” cutting of rates; in Jan. 2025, he argued for “caution” on cuts. Last month, he said that it was “too soon” to know how tariffs would impact inflation. That data, which he expects to see this quarter, could help set the pace of future cuts.
