Fed's Musalem signals rising risk of deteriorating US labour market

Alberto Musalem from the Fed comments on the economic situation and monetary policy in the United States. Here are the key takeaways from his remarks.

• Growth below potential poses risks to the labor market.

• Labor supply and demand have cooled simultaneously.

• Data integrity is critically important to the economy.

• Companies are using various strategies to adapt to tariffs, including cost-cutting and negotiating with suppliers.

• The Fed is currently trying to balance both sides of its mandate.

• The inflationary impact of tariffs is most likely to be short-lived.

• The labor market is balanced, but weaker economic activity poses risks to employment.

• There is a real probability of persistent inflation.

• Most of the impact of tariffs on inflation is likely to fade.

• Looking ahead, there is a risk that the Fed may miss both its inflation and employment targets, with particular concern for jobs.

• At present, the Fed is missing its inflation target but remains aligned with its employment mandate—the labor market is near full employment.

• Companies most reliant on imports are passing on costs, while those closer to the consumer are less likely to raise prices so far.

• Businesses are not yet resorting to layoffs to reduce costs.

• Companies are using various strategies to adapt to tariffs, including cost-cutting and supplier negotiations.

• Firms remain cautious about capital expenditures and hiring.

• Businesses continue to report a shortage of skilled labor.

• Bankers report that funding pressures have eased and credit quality is good.

• Economic activity appears stable—neither growing nor declining.