Federal Reserve Vice Chairman Philip Jefferson struck a more cautious tone than several of his colleagues this week, acknowledging that inflation has remained too high but insisting that as bond markets push up long-term yields, the central bank should monitor and assess whether inflation will fall in a timely manner.
“Since our September meeting, yields across all maturities have risen again, a sign that investors are reassessing the evolving macroeconomic landscape,” Jefferson said in a speech Thursday at the University of Virginia in Charlottesville. “My colleagues and I will have to make our own judgment, which may take longer.
“I will continue to assess whether underlying trends suggest that inflation will return to its target with sufficient speed. With more data in hand, these trends may lend themselves to better discernment, as may the appropriate stance of monetary policy.”
While several Fed officials have seemed more certain this week about the need for further rate hikes, Jefferson and another key Fed leader are showing patience.
New York Fed President John Williams said Tuesday that after raising rates in September, he saw “no urgent need” and that “we have time to gather more information.”
As with Williams, Jefferson’s comments are likely to fuel new market expectations that the Fed will not raise rates again later this month, but will instead wait until its December meeting.
Learn more: How the Fed’s Rate Decision Affects Your Bank Accounts, Loans, Credit Cards, and Investments
Jefferson noted that the economy is being buffeted by a cascade of shocks, including rising energy prices, the growing development of AI and changes in trade policy. But he added that the Fed does not have the “luxury” of considering each shock in isolation.
“We need to think about how this cascade could affect the entire economy when crafting policies to achieve our dual mandate goals,” he said.
Looking ahead, Jefferson said any future interest rate adjustments should be determined by carefully examining data trends, the changing outlook and the balance of risks to inflation and full employment.
He said he supported the decision to raise rates last month because he saw it as “an important step to ensure that long-term inflation expectations remain well anchored and to validate public confidence that we will achieve our 2% inflation target in a timely manner.”
He sees upside risks to inflation due to geopolitical developments and stronger-than-expected aggregate demand. He said he expects inflation to be high in the near term before easing as the effects of energy and other price shocks fade. He added that he was concerned about the risk that a rise in energy prices would lead to a persistent rise in inflation more generally.
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