Federal Reserve Vice Chair Philip Jefferson reiterated on Thursday that the central bank is eying rate cuts “later this year” despite recent inflation readings exceeding expectations. Speaking at the Peterson Institute for International Economics, Jefferson emphasized the potential policy restraint until consumer spending slows, revealing a cautious stance on easing measures.
Summer Timetable and Policy Peak
Atlanta Fed President Raphael Bostic aligned with Jefferson, pointing to a “summer time” initiation of rate cuts in the third quarter. The Federal Open Market Committee (FOMC) decided to maintain the benchmark interest rate during its January meeting, marking its highest level since 2001. Jefferson acknowledged the risks of moving too quickly and stressed the importance of assessing incoming data.
Market Adjustments and Predictions
Market sentiments are adapting to the Fed’s caution, pushing back predictions for the first rate cut from March to June. Despite readings on inflation and the US economy surpassing expectations, the Fed remains steadfast. Recent indicators, including the Producer Price Index and the Consumer Price Index, align with the central bank’s careful approach.
Jefferson’s Outlook and Inflation Challenges
Jefferson, undeterred by disappointing CPI readings, acknowledged the “bumpy” road ahead in containing inflation. He expressed the belief that the current policy rate likely reached its peak in the tightening cycle. The vice chair anticipates moderation in core services inflation as the job market cools. Potential risks highlighted by Jefferson include employment weakening and geopolitical tensions affecting commodity prices.
