Fed’s Musalem warns of inflation expectations unanchoring

St. Louis Fed President Alberto Musalem raised concerns overnight about inflation expectations becoming “unanchored”, emphasizing that the risk is higher when the economy is running without slack and after a period of elevated inflation.

Musalem pointed out that market and survey data show a notable rise in near-term inflation expectations over the past three months, reinforcing worries that inflation might remain above the Fed’s 2% target for longer than anticipated.

He warned that if inflation remains stuck at elevated levels or expectations continue to rise, “a more restrictive path of monetary policy relative to the baseline path might be appropriate.”