Fed's Jefferson Says Rate Stance Could Change If Inflation Doesn't Cool
By CU Today Staff —
STANFORD, Calif.—Federal Reserve Vice Chair Philip Jefferson said the central bank is navigating an unusually complex mix of economic shocks—from higher energy prices and trade policy changes to the rapid emergence of artificial intelligence—that could complicate the path of monetary policy and, if inflation fails to ease, may warrant a reassessment of current interest-rate policy.
Jefferson delivered the remarks at the Stanford Institute for Economic Policy Research at Stanford University.
Jefferson said policymakers are closely monitoring the conflict in the Middle East, which has pushed up energy prices, as well as the spread of AI across the economy. While oil prices have retreated from recent highs, he said uncertainty remains, and the combination of energy costs, trade policy changes and still-elevated inflation has created "a delicate balancing act" for the Federal Open Market Committee as it seeks to maintain price stability without undermining employment.
"These factors confront the FOMC with a delicate balancing act. On the one hand, we face the imperative to address inflationary pressures. On the other hand, we must be mindful of employment potentially moving below its maximum sustainable level," Jefferson said. "This scenario exemplifies the type of policy dilemma where our dual-mandate objectives are not aligned but rather in tension with each other."
Jefferson also said AI could have lasting effects on both economic growth and inflation. While stronger investment in AI and related infrastructure could boost demand in the near term, productivity gains could eventually expand the economy's productive capacity and reduce inflationary pressures. The timing of those competing effects, he said, will be critical for monetary policymakers.
Looking ahead, Jefferson reiterated his commitment to returning inflation to the Fed's 2% target and noted the FOMC left its benchmark federal funds rate unchanged at its June meeting.
"That said, in a scenario where actual inflation does not start to cool down soon, I believe that it could be appropriate to reconsider our current policy stance to ensure we fulfill our commitment to deliver price stability," he said.
Originally reported by CU Today.