MNI: Fed's Jefferson Taking Balanced Approach To Rate Cuts

Federal Reserve Vice Chair Philip Jefferson said Tuesday monetary policy will balance the risks to both sides of the Fed's mandate as tariffs and other government policies work their way through the economy.

The Fed resumed easing this month in response to rising risks to the labor market, while still putting pressure on inflation by keeping a restrictive stance, Jefferson said.   

"With the unemployment rate at 4.3%, the labor market is softening, which suggests that, left unsupported, it could experience stress. To balance the risk of persistent above-target inflation and the risk of a deteriorating labor market, I supported a 25 basis point cut in our target range at the last FOMC meeting. This change moved our policy rate closer to a more neutral stance while maintaining a balanced approach to promoting our dual-mandate objectives," he said in remarks prepared for a Bank of Finland conference in Helsinki. 

"With respect to the path of the policy rate going forward, I will continue to evaluate the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. I will also consider and assess information about government policies and their effects on the economy." 

"The risks to both sides of our dual mandate have shifted," Jefferson said. (See: MNI INTERVIEW: Fed Right To Remain Cautious On Rate Cuts-Kohn)

SLOWER GROWTH

Jefferson said he expects the disinflation process to resume after this year and inflation to return to the 2% target in the coming years. 

Headline and core inflation at 2.7% and 2.9%, respectively, are "somewhat" above target with tariff effects apparent in some goods categories, he said, adding, "it is also notable that it so far has been lower than what many forecasters predicted this spring." 

Employment growth has slowed to the slowest since Covid, he said, "largely explained by the slower growth in the labor force." Other measures that bear watching, including the ratio of unfilled jobs to unemployed seeking work and job openings and jobless claims have been mostly moving sideways, he said. 

Economic growth has also slowed to around 1.5% in the first half and will likely maintain that pace in the second half, he said.