FED: VC Jefferson Eyes Higher Risks To Both Sides Of Mandate, But No Rush To Cut

Fed Vice Chair Jefferson (permanent FOMC voter) provides a fairly even-handed outlook for the economy in a speech Tuesday (link), with his views appearing to correspond to those of the center of the Committee. He doesn't exactly repeat the language he's employed in recent months of being in "no need to be in a hurry" to cut rates, but the overall tone in his latest speech is consistent with a wait-and-see attitude on hard data and open-mindedness on whether tariffs will be persistently inflationary. Overall, he thinks uncertainty is likely to prevail for "some time".

• He continues describes the current level of rates as "moderately restrictive" (Chair Powell reiterated last week that policy was modestly or moderately restrictive, with Gov Kugler Monday also using the term "restrictive"), and repeats what colleagues have described as policy being "well positioned" to respond to developments: "Over the past several meetings, the rate has been held at what I view as a moderately restrictive level. I view the current stance of policy as well positioned to respond to developments that may arise."
• Pointing to "increased risks to both sides of our mandate", Jefferson says "I remain focused on the aggregate effect from the totality of different government policy changes, including trade, immigration, regulatory, and fiscal policies, as well as their net effects on the economy. This net effect will likely remain uncertain for some time."
• He's lowered his growth expectations but there's not much sign that this week's US-China tariff de-escalation has impacted his view significantly, pointing to business uncertainty as portrayed in the latest Beige Book, and noting that he would be "following developments carefully".  On growth and the labor market, "I have adjusted down my expectations for economic growth this year, but I see the U.S. economy as continuing to expand...labor market [] conditions continue to be solid...Looking ahead, I am watching for signs that the labor market could cool as tariff increases begin to weigh on economic activity."
• He is paying close attention to hard data to corroborate survey weakness though: "various measures of consumer and business sentiment have declined sharply this year, and I will be watching very carefully for signs of weakening economic activity in hard data" (implying that he'll be sensitive to weakness in deciding whether and when it's time to cut rates).
• On inflation, Jefferson notes data showing continued progress toward 2% though appears "wait-and-see" on tariff-associated inflation persistence, while also noting that longer-run expectations remain anchored: "recent data are consistent with further progress toward our 2 percent inflation target; however, that goal has not yet been reached....If the increases in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation. Whether tariffs create persistent upward pressure on inflation will depend on how trade policy is implemented, the pass-through to consumer prices, the reaction of supply chains, and the performance of the economy. Short-term inflation expectations have increased in both survey- and market-based measures, but I think it is notable that most measures of longer-run inflation expectations have been largely stable."