St. Louis Federal Reserve President Alberto Musalem has put the likelihood of Donald Trump's trade war causing a prolonged surge in inflation at "50-50," warning that U.S. policymakers would face uncertainty "right through the summer," the Financial Times reported on Friday.
Musalem told the newspaper that while U.S. President Trump's tariffs could boost inflation for "a quarter or two," there was "an equally likely scenario where the impact of tariffs on prices could last longer."
Trump’s tariff hikes and a $2.4 trillion budget bill have shaken markets, prompting a wait-and-see stance from the Fed after last year’s rate cuts.
Musalem said he believes officials could benefit from a favorable scenario where uncertainty over trade and fiscal policy "goes away in July," which would put the Fed back on track to cut interest rates in September, according to the FT.
He also highlighted, however, the possibility of a scenario "where inflation begins to rise materially and we will not know whether that is a temporary, one-off increase in the price level or whether it has more persistence," the report said.
The Fed is expected to hold rates steady at its mid-June meeting, when it will release updated economic projections.
