Fed’s Bostic and Musalem Warn of Slowing Growth and Sticky Inflation

Atlanta Fed President Raphael Bostic said the U.S. economy is likely to keep slowing, adding that businesses remain in a “wait-and-see” mode on employment. He warned that prices could face upward pressure for the next six to 12 months, a development that would add to the Federal Reserve’s policy challenges as it seeks to return inflation to target without derailing the labor market. A day later, St. Louis Fed President Alberto Musalem told an audience in Mississippi that overall economic activity appears steady—neither expanding nor contracting—yet growth is running below its potential and could threaten jobs. The Fed is currently missing its inflation objective while still meeting its employment mandate, he noted, but there is a risk the central bank could soon fall short on both fronts if activity weakens further. Musalem said most of the inflation boost from the 145% tariff on Chinese goods is likely to be temporary. Companies heavily reliant on imports are passing along higher costs, but firms closer to consumers have so far refrained from broad price increases, instead cutting costs or negotiating with suppliers. Businesses continue to report shortages of skilled labor and remain cautious about capital spending and hiring, although bankers say funding pressures have eased and credit quality is strong. Taken together, the officials’ remarks underscore the delicate balancing act facing the Federal Reserve as it weighs persistently elevated prices against signs of cooling demand and a labor market that may be starting to soften.