Warning from the Fed President
Alberto Musalem, the President of the Federal Reserve Bank of St. Louis, warned on April 11, 2025, that economic growth in the U.S. is expected to be below trend this year. This assessment is particularly relevant for private investors and savers in the German-speaking region, as the decisions of the Federal Reserve have direct impacts on global financial markets and can thus also influence investor sentiment in Germany, Austria, and Switzerland.
Key Insights from Musalem
- Growth Forecast: Musalem estimates that growth could be significantly below the long-term trend of about 2%. He expressed concern about rising tariffs and their potential impact on inflation and economic activity.
- Inflation Risks: He warned of upward risks for inflation due to possible tariff measures. These could not only be felt in the short term; their full economic impact could take months or even years to materialize.
- Financial Conditions: Musalem noted that financial conditions have tightened. If these tighter conditions persist, it could have negative consequences for economic growth.
- Labor Market: Although he does not predict an immediate recession, he expects an increase in the unemployment rate over the course of the year due to weaker growth and declining consumer confidence.
Market Reactions
Musalem’s statements led to a weakness in the U.S. dollar; it fell by about 1% to an index value of around 99.92. Uncertainty about future tariffs as well as their influence on prices and wages heightens concerns in the markets.
Implications for the German-Speaking Region
The warnings from the U.S. are also significant for European investors:
- Slower growth in the U.S. may lead to a decline in trade volume with Europe.
- According to estimates, German GDP could shrink by up to 0.40% as a consequence of these developments.
Overall, there is an increasing picture of uncertainty regarding both economic prospects and potential monetary policy measures by the Fed. This could lead to investors needing to become more cautious in light of potential market volatility resulting from global economic changes.