Federal Reserve’s Musalem: U.S. Fiscal Deficit Could Become a Financial Stability Issue

Odaily Planet Daily – Federal Reserve’s Musalem stated that the U.S. fiscal deficit is on an unsustainable path and could become a financial stability issue in the future. The current economic situation is favorable, with the labor market at or near full employment. Inflation still faces some upside risks, but monetary policy is currently moderately restrictive, and financial conditions are generally supportive of economic growth. Recently, some positive trends in inflation have been observed, but due to the impact of tariffs, inflation is expected to rise in the future. However, it is still uncertain whether tariffs will have a more lasting effect. High profit margins give companies some room to absorb part of the tariff shock, while a weaker dollar could further drive inflation. Musalem pointed out that the specific impact of tariffs may not be fully realized until later this year or early next year. (Jin10)