Federal Reserve Vice Chair Philip Jefferson suggested Tuesday that the central bank’s key rate may have to remain at its peak for a while to bring down persistently elevated inflation. In a speech, Jefferson said he expects inflation to continue to slow this year. But he omitted a reference to the likelihood of future rate cuts that he had included in a previous speech in February. Instead, he said his outlook is that inflation will cool even with the Fed’s key rate “held steady at its current level.”
Quick Read
- Fed’s Rate Strategy: Federal Reserve Vice Chair Philip Jefferson indicated that the central bank’s key interest rate may need to remain at its current high level to effectively combat persistent inflation. He noted an expectation for inflation to continue slowing, but emphasized maintaining the rate steady to achieve the Fed’s 2% target.
- Change in Messaging: Jefferson’s recent statements marked a shift from earlier comments in February, where he suggested potential rate cuts later in the year. His latest speech lacked any mention of rate cuts, instead focusing on the necessity of keeping rates stable for a longer period if high inflation persists.
- Current Inflation Context: With U.S. consumer inflation currently at 3.5% year over year, Jefferson stressed that despite progress, the goal of restoring inflation to 2% has not yet been fully achieved.
- Implications for Future Policy: These comments suggest a potential revision of the Fed’s earlier forecast in March, which had anticipated three quarter-point rate cuts this year. This adjustment in stance aligns with ongoing efforts to ensure inflation returns to the target level.
- Upcoming Remarks by Fed Chair: Further insights are expected from Fed Chair Jerome Powell, who is scheduled to speak later Tuesday, potentially providing more clarity on the Fed’s rate strategy and timelines for any adjustments.
The Associated Press has the story:
A top Federal Reserve official opens door to keeping rates high for longer
Newslooks- WASHINGTON (AP) —
Federal Reserve Vice Chair Philip Jefferson suggested Tuesday that the central bank’s key rate may have to remain at its peak for a while to bring down persistently elevated inflation. In a speech, Jefferson said he expects inflation to continue to slow this year. But he omitted a reference to the likelihood of future rate cuts that he had included in a previous speech in February. Instead, he said his outlook is that inflation will cool even with the Fed’s key rate “held steady at its current level.”
If elevated inflation proves more persistent than he expects, Jefferson added, “it will be appropriate” to keep rates at their current level “for longer” to help slow inflation to the Fed’s 2% target level. U.S. consumer inflation, measured year over year, was most recently reported at 3.5%.
Jefferson’s remarks appeared to open the door to the prospect that the Fed will dial back its forecast, issued at its most recent policy meeting in March, that it would carry out three quarter-point cuts this year to its benchmark rate, which stands at about 5.3%. Chair Jerome Powell is scheduled to speak later Tuesday and may comment on the Fed’s potential timetable for rate cuts.
In February, Jefferson had said that should inflation keep slowing, “it will likely be appropriate” for the Fed to cut rates “at some point this year” — language that Powell has also used. Yet that line was excluded from Jefferson’s remarks Tuesday.
“While we have seen considerable progress in lowering inflation, the job of sustainably restoring 2% inflation is not yet done,” Jefferson said.
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