Fed's Jefferson: Economy Stabilizes, Inflation Nears 2% Target

Jefferson stated current Fed policy is "well positioned" to address risks to its dual mandate, indicating an anticipated pause in further interest rate cuts. The Fed held its policy interest rate steady in the 3.50%-3.75% range last week, with future adjustments hinging on incoming job and inflation data.

Jefferson noted the Fed's preferred inflation measure is about one percentage point above the 2% target, and "progress on disinflation has stalled over the past year." However, he sees the overall labor market as "roughly in balance," with a low unemployment rate of 4.4% and slow job growth aligning with tepid labor force expansion due to tightened immigration policies. Jefferson's baseline expects the unemployment rate to hold approximately steady throughout this year.

He also cautioned that while higher productivity from AI investment could be beneficial, the immediate increase in demand for data center construction could temporarily raise inflation, countering arguments from some policymakers like Kevin Warsh.