Federal Reserve Vice Chair Philip Jefferson said the U.S. economy was on a path of moderate growth but that the recent government shutdown likely trimmed activity and has increased downside risks to employment, while inflation—running a bit under 3 percent—has stalled in its progress to the 2 percent target with tariffs contributing to a one‑time level shift. He defended last month’s 25 basis‑point rate cut and explained the FOMC’s decision to end balance‑sheet runoff on Dec. 1 after roughly $2.2 trillion in reductions, citing rising repo and effective funds rates versus the IORB; going forward the Fed will hold the balance sheet roughly steady, allow agency runoffs and reinvest in Treasury bills. Jefferson emphasized a meeting‑by‑meeting, data‑dependent approach, underscoring a cautious easing bias but signaling that labor‑market developments and tariff pass‑through will determine the pace of further easing and the implications for money‑market conditions.
Vice Chair Philip Jefferson said the U.S. economy was on a trajectory of moderate growth but that the recent federal government shutdown likely trimmed activity this quarter by furloughing workers and delaying government purchases; he noted key data releases have been delayed and expects some of the shutdown effects to reverse in coming months. He judged the balance of risks as shifted toward downside risks to employment while upside risks to inflation have declined somewhat, and he expects the unemployment rate to inch up slightly from the 4.3 percent rate recorded in August. On inflation Jefferson reported headline inflation running a bit below 3 percent and progress toward the 2 percent target has stalled, with tariffs contributing to a one-time level shift in prices and potential pass-through to pick up in Q4 as inventories turn over; near-term inflation expectations have retraced and long-term market-based measures remain anchored. He identified tariff final rates, pass-through timing, supply-chain responses, and labor-market conditions as the key determinants of persistence. Jefferson supported last month’s 25 basis point policy-rate cut and the FOMC decision to end balance-sheet runoff effective Dec. 1 after about $2.2 trillion of reductions, citing upward pressure on repo and effective funds rates versus IORB; going forward the Fed will hold the balance sheet roughly steady, allow agency runoffs, and reinvest in Treasury bills. He emphasized a meeting-by-meeting, data-dependent approach, implying a cautious easing bias but continued attention to money-market strains and employment data before further moves.
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