Federal Reserve Vice Chair Philip Jefferson said the economic picture in the United States has changed in an important way. He explained that the risks to jobs are growing even though inflation has stopped improving in recent months.
Jefferson spoke at an event hosted by the Kansas City Fed. He said the economy had been growing at a steady, moderate pace before the recent government shutdown. Now the job market seems to be cooling on both the hiring and worker-supply sides. He thinks the unemployment rate will rise a little by the end of the year from the August level of 4.3 percent. He believes the risks to employment are now tilted toward weaker conditions.
When talking about inflation, Jefferson said the Fed’s progress toward its two percent goal has basically paused. Price increases are still just under three percent, which is about the same as a year ago. He said much of this pause comes from tariffs, which can push prices up temporarily. Without the tariff effects, he thinks inflation may still be slowly easing.
Jefferson supported the Fed’s recent quarter-point rate cut, saying interest rates are still slightly tight but moving closer to a neutral level. Because the risks are shifting, he said the Fed needs to move carefully and not rush decisions.
He also confirmed that the Fed will stop shrinking its balance sheet on December first. Since mid-2022, the Fed has reduced its holdings by around two point two trillion dollars. Starting next month, the Fed will keep the overall size steady. It will let agency securities run off but will reinvest that money into Treasury bills.
Jefferson ended by saying the Fed will make decisions one meeting at a time. He stressed that the path ahead depends on new data and the way risks change in the coming months.