Fed officials continue to emphasize the need for prudent monetary policy.
Fed Vice Chairman Philip Jefferson said today that the economy faces two difficult challenges simultaneously: a weakening labor market and above-target inflation.
Mr. Jefferson said the current outlook is characterized by high uncertainty, but that this uncertainty will fade as the White House’s economic policy becomes clearer. “As these policies are phased in, we will have more time to assess their economic impact, and we expect overall uncertainty to decrease,” Jefferson said. He also commented on the path of interest rates, saying they will be determined taking into account current data, the balance of risks and the impact of government policy.
Dallas Fed President Laurie Logan issued a similar warning. Logan said monetary policy tightening would be limited to a limited extent and there was no rush to cut interest rates. Mr Logan argued that despite the balanced outlook, the labor market remained fragile, saying: “Demand stimulation increases price pressures but does not increase employment.”
Logan also noted that tariffs could spur inflation, an effect that could put upward pressure on long-term inflation expectations. He noted that upside risks to commodity prices remain, and continued high inflation in non-residential services is also a concern.
*This is not investment advice.
