Fed's Musalem says rates could stay put if trade tensions are durably de-escalated
May 20 (Reuters) - Even after the U.S. and China trade detente, the labor market looks likely to weaken and prices to head higher, but as long as the public continues to expect inflation to fall to the U.S. central bank's 2% goal, a balanced monetary policy response to that challenging mix remains "feasible," St. Louis Federal Reserve President Alberto Musalem said on Tuesday.
Without well-anchored inflation expectations, though, "I believe policy should prioritize price stability in the face of persistent inflationary pressures that threaten to dislodge long-term inflation expectations," he said in remarks prepared for delivery to the Economic Club of Minnesota. On the other hand, if trade talks durably de-escalate trade tensions, the labor market could stay strong and inflation remain on a path to 2%, he noted.
"In this scenario, the current stance of monetary policy, which is focused on bringing inflation back to 2% in the context of a full employment labor market, will remain appropriate," he said.
Musalem repeated his view that with tariffs equally likely to lead to temporary inflation as to more persistent inflation, the Fed should not commit to rate cuts to cushion the economy until there is more certainty on the actual effects.
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