Federal Reserve's Mester: Economic Growth to Be Below Trend, Inflation Risks to Rise

On April 9th, Mester of the Federal Reserve stated that the U.S. economic growth might decline "substantially" beneath the trend level, and the unemployment rate would rise within the year as businesses and households adjusted to higher prices resulting from new import tariffs. Mester said, "I don't have a recession baseline, but I think economic growth could be notably below the trend." He estimated a growth rate of around 2%. He stated that "two-way risks will both materialize." As higher-than-expected tariffs exerted pressure on prices, declining confidence and the recent sharp decline in the stock market might dampen spending, hitting household wealth. The rising prices would have an impact. All these factors together would lead to a slowdown in economic growth. Mester, who has a vote on interest rate policy this year, said that the monetary policy response would depend on how inflation and unemployment evolved in the coming months, whether price shocks were sustained, and whether inflation expectations remained in line with the Fed's 2% inflation target. (FXStreet)