03:03 PM EDT, 04/01/2026 (MT Newswires) -- Employment and inflation risks in the US have tilted in opposite directions, with ongoing geopolitical events seen keeping price growth above the Federal Reserve's target throughout this year, St. Louis Fed President Alberto Musalem said Wednesday.

Consumers face soaring fuel costs as the US-Israel war with Iran has disrupted supply chains and intensified inflationary pressures. The conflict, now into its fifth week, has spread across the Middle East, with the crucial Strait of Hormuz effectively closed.

"The economic outlook is highly uncertain," Musalem said in prepared remarks for delivery in Washington, DC. "The risks to the labor market and inflation both tilt in unfavorable directions, that is, toward a weaker labor market and greater persistence of above-target inflation."

The surge in energy prices due to supply disruptions and shut-ins caused by the Middle East conflict will put upward pressure on headline inflation in the near term, with some pass-through to core inflation, Musalem said.

"Uncertainty from the Middle East conflict and unsettled tariff policy could weigh on consumer and business spending in the first half of the year," Musalem said. "So could higher fuel, aluminum and fertilizer prices, which are especially sensitive to supply chain disruptions in the region."

"I now see more risk of persistent above-target inflation throughout 2026," said Musalem, who will become a voting member of the Federal Open Market Committee in 2028.

Surveys indicate that payroll growth continued to slow in March amid heightened geopolitical uncertainty, Musalem said. "I perceive labor market risks as weighted to the downside," he added. "With the pace of hiring already low, an increase in layoffs could lead to a rapid increase in the unemployment rate."

On Monday, Fed Chair Jerome Powell said that inflation expectations in the US seem to be "well anchored" beyond the short term despite the recent oil price shock.

Employment in the US private sector increased more than projected in March, ADP (ADP) said Wednesday. Data from the Bureau of Labor Statistics are expected to show Friday that the US economy added 65,000 nonfarm jobs last month, following a reduction of 92,000 in February, according to a Bloomberg-compiled survey. The unemployment rate is seen unchanged at 4.4%.

Last month, the Fed kept its monetary policy steady for a second consecutive meeting amid uncertainty around the Middle East conflict. Musalem supported that move.

"Policy is well positioned to address risks to both dual mandate objectives, and I expect the current setting of the policy rate will remain appropriate for some time," he said Wednesday.

Musalem joins a chorus of Fed officials raising concerns about the economic fallout from the Iran war.

President Donald Trump said Wednesday that Iran asked for a ceasefire, though Tehran reportedly denied that claim. Trump is scheduled to deliver an address to the nation later on Wednesday.

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