US economic growth is likely to fall "substantially" below trend and unemployment will rise this year as businesses and households adjust to higher prices driven by new import tariffs, the Federal Reserve's Mr. Musallum said. "I don't have a baseline for a recession but I think growth is likely to be significantly below trend," he said, estimating growth at about 2 per cent. "Risks will materialise in both directions," he said, adding that higher-than-expected tariff pressure on prices, a drop in confidence and the recent sharp fall in the stock market could damp spending, hit household wealth and take a toll on rising prices, all of which combine to slow growth. Musallam, who has a vote on interest rate policy this year, said the response of monetary policy will depend on how inflation and unemployment conditions evolve in the coming months, whether price shocks persist, and whether inflation expectations are in line with the Federal Reserve's 2 percent inflation target.