Federal Reserve Vice Chair Philip Jefferson addressed the rationale behind last month’s half-percentage-point interest rate cut during remarks on Tuesday, emphasizing that the decision was designed to support a strong labor market even as inflation shows signs of moderating.
“The Federal Open Market Committee (FOMC) has gained greater confidence that inflation is moving sustainably toward our 2% target,” Jefferson stated. He is a member of the committee that sets monetary policy. “To maintain the strength of the labor market, my FOMC colleagues and I recalibrated our policy stance last month.”
The Fed’s decision to reduce rates by 50 basis points during its September 17-18 meeting was larger than many analysts had anticipated. Speaking at Davidson College in North Carolina, Jefferson framed the rate cut similarly to comments made by Fed Chair Jerome Powell, highlighting the dual goals of sustaining economic health while combating inflation.
“Economic activity continues to grow at a solid pace. Inflation has eased substantially. The labor market has cooled from its formerly overheated state,” Jefferson noted.
According to the Fed’s preferred inflation measure, the year-over-year change in the personal consumption expenditures (PCE) index, inflation stood at 2.2% in August, a significant improvement from 6.5% two years prior. “I expect that we will continue to make progress toward that goal,” he added.
The unemployment rate currently sits at 4.1%, reflecting only a slight increase from 3.8% a year ago. However, Jefferson pointed out that job growth has slowed. “The cooling in the labor market is noticeable,” he remarked.
Echoing the language of the Fed’s post-meeting statement from last month, Jefferson expressed his intention to carefully monitor incoming data, the economic outlook, and the associated risks when considering future rate adjustments.
“My approach to monetary policymaking is to make decisions on a meeting-by-meeting basis,” he said. “As the economy evolves, I will continue to update my thinking about policy to best promote maximum employment and price stability.”
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