Fed’s Musalem: Strong Economy, Tight Labor Market

Musalem stated that the U.S. economy is “in a good place.” Unemployment remains low, and companies are still hesitant to lay off workers. However, hiring activity appears weaker than in previous periods. Slower immigration rates may be contributing to a reduced labor supply.

Monetary Policy Is Moderately Restrictive

Assessing the Fed’s current stance, Musalem described monetary policy as “moderately restrictive.” This suggests that interest rates are still high enough to constrain growth. Nevertheless, financial conditions continue to support economic expansion, he noted.

Inflation: Temporary or Persistent?

On the inflation front, Musalem struck a cautiously optimistic tone. While inflation has shown favorable trends over the past three months, he emphasized that tariffs and a weakening U.S. dollar could add new upward pressure to prices in the coming months.

The full impact of incoming tariff measures may not be felt until the end of this year or the beginning of next year, he said. Musalem added that the effect could vary across different layers of the supply chain, and it’s still too early to say whether the impact will be one-time or persistent.

Inflation Expectations Remain Anchored

Despite these risks, inflation expectations—a key metric for the Fed—remain stable. Musalem underlined that long-term expectations are “anchored,” and that the central bank is committed to keeping them that way

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