During a speech in Kentucky, St. Louis Fed president Alberto Musalem expressed concerns about the lasting impact of President Trump's new tariffs on inflation, contradicting Fed Chair Jerome Powell's belief that any price hikes might only be temporary.

Musalem cautioned that while the direct effects of tariffs are expected to cause short-lived inflation, the indirect effects could prolong inflationary pressures. His remarks were made following the Federal Reserve's decision to keep interest rates stable for the second consecutive meeting, although the outlook on inflation was raised and economic growth expectations were lowered due to uncertainty surrounding Trump's tariff plans.

Powell's assertion that tariff-induced inflation would likely be transitory sparked debate, with Treasury Secretary Scott Bessent suggesting that Fed officials treat such price increases as temporary. Musalem, on the other hand, acknowledged that while direct tariff effects may be one-time occurrences, the secondary impacts on non-imported goods and services could have a lasting influence on inflation.

The Fed president emphasized the complexity of distinguishing between direct and indirect effects of tariffs in real-time, highlighting the uncertainty involved. If inflation expectations continue to rise, Musalem believes that maintaining current interest rates for an extended period may be necessary, suggesting the need for a more restrictive policy in response.