Economic activity appears stable, not now increasing or decreasing
Bankers report that funding pressures have diminished, credit quality is good
Companies continue to report a shortage of skilled labor
Firms remain cautious on capital spending and hiring
Companies are using different strategies to adapt to tariffs, including cost-cutting and negotiating with suppliers
Companies are not yet resorting to layoffs to reduce costs
Companies that are most dependent on imports are passing along costs; those closer to consumers are less likely to raise prices so far
The Fed is now missing on its inflation target but not missing on its employment mandate; labor market around full employment
Looking ahead there is a risk that the Fed may miss on both inflation and employment, with downside risk to jobs
Likely that most of the impact of tariffs on inflation will fade
There is a reasonable probability that there may be some inflation persistence
Labor market is in balance, but economic activity has been weaker and that poses risks to jobs
The Fed is balancing risks to both sides of its mandate right now
Fed voter Musalem’s comments present a cautiously balanced view, with a lean toward hawkishness as he sees the Fed missing on inflation and not on employment target. He favors keeping policy where it is.
