Fed's Musalem: Rates May Stay on Hold for Some Time

Fed official Musalem said on April 16 that elevated oil prices could lift core inflation to nearly 1 percentage point above the Federal Reserve's 2% target for the rest of the year, a backdrop that could argue for keeping interest rates unchanged. "We are likely to see some passthrough of oil prices to core inflation," he said, adding that the underlying inflation gauge could end the year "slightly below 3%, perhaps around 3%," with risks still skewed to the upside. Musalem said the Fed may hold its policy rate in the current 3.50%–3.75% range "for some time" while it tracks inflation, employment and incoming economic data in the months ahead, a stance he said is broadly shared by many colleagues. He noted that the impact of last year's tariff increases may begin to fade this quarter and that housing-price inflation is easing. Still, with oil prices climbing, inflation remains elevated across a range of services. If inflation resumes rising and risks unmooring inflation expectations, he said he would remain open to additional rate hikes. Musalem called the oil market the "third negative supply shock in 12 months," citing added pressure from higher tariff rates and tighter immigration rules. He said the combination could worsen inflation risks and weigh on the labor market, potentially restraining growth. He expects the economy to slow this year but still expand in a 1.5%–2% range. (Jin10)