St. Louis Federal Reserve President Alberto Musalem stated on March 26 that President Trump's tariff plans could increase inflation by up to 1.2 percentage points if fully implemented. Musalem, a voting member of the Fed's rate-setting committee this year, made these remarks during a speech in Kentucky.
Musalem noted that the tariffs are expected to have both direct and indirect effects on prices. He estimated that a 10% increase in the effective U.S. tariff rate could raise the rate of PCE (Personal Consumption Expenditures) inflation by up to 1.2 percentage points. The direct impact on the price level is estimated at around 0.5 percentage points, with an indirect effect of about 0.7 percentage points.
Minneapolis Fed President Neel Kashkari expressed uncertainty about the effect of tariffs on the U.S. economy, suggesting they could both push up prices and slow economic growth. He concluded that the Fed should remain in its current position until there is more clarity.