Inflation is running about 3% above the 2% target
Tariffs are impacting, but expect those pressures to fade after 6 to 9 months. But it could be more persistent.
The Fed has a dual mandate.
I am going both things that inflation is 1% above target, and that the risks to the employment are to the downside.
I see the labor market stable around full employment.
There are some signs of weakening. Payroll growth was low with very large revisions.
The demand for labor has declined but so has the supply.
With lower immigration flows, it’s reasonable to expect that the nonfarm payroll could be sub 50 K
Despite the slower job growth, the unemployment rate remained steady at 4.2%.
I take a meeting by meeting approach.
I tried to be as forward-looking as possible.
The last two months I have been revising my reassessment of the labor weakness higher.
I have adjusted my reassessment of inflation as a result of the tariffs to the downside.
For me it is too early for me to say exactly what policy I will support.
I see risks that inflation be more persistent but it’s not my basecase.
Slower growth and potential margin pressure could lead to lower employment
Having said that, the companies that I am in touch with are not speaking of layoffs
My job is to listen to Main Street and the people I represent in my district.
We are seeing some higher services inflation which is unusual
I think it’ll take two or three quarters for tariffs to impact through.
A little bit more data would be helpful.
From my perspective 50 basis points of cut is unsupported by the economic data.

Clearly he is noncommittal at this moment regarding a move in September. What we do know is 50 basis points is not justified. He sees risk to inflation higher but that is not his basecase. Although there are risks to higher unemployment, his anecdotal information is not supportive of layoffs.

I would put Musalem in the undecided bucket as he ways the dual mandate implication of tariffs on inflation and the economy.

By topic:

Inflation

Inflation is running about 3% above the 2% target.
Risks exist that inflation could be more persistent, though this is not the base case.
Higher services inflation is being seen, which is unusual.
Tariffs are impacting inflation, but pressures are expected to fade after 6–9 months (could be more persistent).
Tariffs may take 2–3 quarters to fully impact inflation.
Adjusted reassessment of inflation to the downside due to tariffs.

Labor Market

Labor market is stable around full employment, though there are signs of weakening.
Payroll growth was low with large downward revisions.
Demand for labor has declined, but so has supply.
With lower immigration flows, nonfarm payroll could be below 50K.
Despite slower job growth, the unemployment rate stayed steady at 4.2%.
Slower growth and margin pressure could lead to lower employment, though companies contacted are not speaking of layoffs.

Policy Approach

The Fed has a dual mandate: inflation ~1% above target and risks to employment on the downside.
Meeting-by-meeting approach, aiming to be forward-looking.
In the past two months, reassessment of labor weakness has been revised higher.
Too early to say exactly what policy will be supported.
From this perspective, a 50-basis-point cut is unsupported by current economic data.

Perspective & Communication