01:39 PM EDT, 09/03/2025 (MT Newswires) -- Inflation is expected to begin converging toward the Federal Reserve's 2% target in the second half of 2026, though there's "a reasonable possibility" of more persistent price pressures as uncertainty around tariffs remain, St. Louis Fed President Alberto Musalem said Wednesday.

Speaking ahead of the Federal Open Market Committee's Sept. 16-17 policy meeting, the FOMC voter said the economic impact of tariffs will likely unfold over the next two to three quarters.

"I expect inflation will resume convergence toward 2% in the second half of 2026," Musalem said in a speech to be delivered in Washington, D.C. "However, there is considerable uncertainty, and I perceive a reasonable possibility that above-target inflation could be more persistent."

Indirect effects on non-imported categories or second-round price gains due to tariffs could prolong the adjustment process, he said.

Musalem flagged downside risks to the labor market, citing factors including an increased proportion of longer-term unemployed workers and sharp downward revisions to payrolls estimates.

Data released in August showed that the US economy added fewer jobs than projected in July, while gains in the previous two months were revised lower.

"I expect the labor market to gradually cool and remain near full employment, with risks tilted to the downside," he said. "While I am not hearing from businesses about an imminent increase in layoffs, real GDP growth that is somewhat below potential and profit margin pressures related to tariffs could contribute to such an outcome."

The Fed is widely expected to cut interest rates this month. Chair Jerome Powell in August indicated a potential monetary policy pivot, saying that downside risks to employment were rising, while the effects of tariffs on inflation will likely be short lived.

Musalem described the Fed's prevailing monetary policy as "modestly restrictive," saying that "policy must be forward-looking and based on the evolving economic outlook and balance of risks."