Fed's Musalem says rates may need to stay on hold for some time

St. Louis Fed President Musalem said on April 15 that high oil prices could keep core inflation about one percentage point above the central bank's 2% target for the rest of the year, potentially requiring interest rates to remain at their current levels. He noted a high probability that oil prices would pass through to core inflation, projecting the year-end figure to be around 3% or slightly below, with risks of further increases. Musalem explained that the Fed is likely to maintain its benchmark rate, currently in the 3.50% to 3.75% range, for some time while monitoring incoming data on inflation, employment, and the economy over the next several months. He added that many of his colleagues share this view. While the effects of last year's tariff hikes are fading and housing inflation is slowing, Musalem stated he would remain open to raising rates if rising prices begin to push up inflation expectations. He also warned that the oil market is facing its third negative supply shock in 12 months and that, combined with tariff increases and stricter immigration rules, both the inflation outlook and the job market are at risk, which could also harm economic growth. However, he still expects the economy to grow by 1.5% to 2% this year, despite a slowdown.