MNI BRIEF: Jefferson-Fed Should Stay Cautious As Nears Neutral

Federal Reserve Vice Chair Philip Jefferson said Friday the U.S. central bank should tread cautiously on monetary easing as the federal funds rate nears estimates of the neutral rate of interest, particularly as key official data is missing due to the government shutdown. 

"It makes sense to proceed slowly as we approach the neutral rate," he said. "I always take a meeting-by-meeting approach. This approach is especially prudent because it is unclear how much official data we will have before our December meeting." (See MNI INTERVIEW: More Fed Cuts Risk Inflation Spike-Weinberg)

The Fed's quarter-point rate cut last week "was appropriate because I see the balance of risks as having shifted in recent months as downside risks to employment have increased," he said. "The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy."

Data available from sources outside of government statistics suggest that the overall economic picture has "not changed much over the past few months," he said in prepared remarks for a speech to a youth group in Frankfurt. "The economy has been growing at a moderate pace while labor market conditions appear to be consistent with a gradually cooling."

As for inflation, Jefferson noted it is running at a similar rate than a year ago. "The lack of progress on headline inflation appears to be due to tariff effects, with signs that underlying inflation may be continuing to make progress to 2%. Market-based long-term inflation expectations continue to be well-anchored."