Fed's Musalem: Economic activity appears stable, with neither a rise nor a drop currently. Bankers report that financing pressures have eased, and credit quality is good. Companies continue to report a shortage of skilled labor. Businesses remain cautious regarding capital expenditures and hiring. Companies are adopting different strategies to cope with tariffs, including cutting costs and negotiating with suppliers. Companies have not yet reduced costs through layoffs.

Companies that rely most on imports are passing on costs, while those closer to consumers are less likely to raise prices so far. The Fed is currently falling short of its inflation target, but it has not failed in its employment mandate and the labor market is close to full employment. Looking ahead, there is a risk that the Fed may not meet its targets for both inflation and employment, and there are downside risks to employment.

The impact of tariffs on inflation is likely to gradually fade. There is a certain probability of persistent inflation. The labor market is balanced, but economic activity is weaker, posing risks to employment. The inflation boost from tariffs is likely to be temporary.

The Fed is currently seeking a balance between the two ends of its responsibilities. Data integrity is crucial to the economy. The supply and demand of labor are both cooling down. Growth below potential levels poses risks to the labor market.