Federal Reserve Vice Chair Philip Jefferson on Tuesday said the U.S. central bank’s half-percentage-point interest-rate cut last month was aimed at keeping the labor market strong even as inflation continues to ease.
“The FOMC has gained greater confidence that inflation is moving sustainably toward our 2% goal,” Jefferson said, referring to the rate-setting Federal Open Market Committee, of which he is a member. “To maintain the strength of the labor market, my FOMC colleagues and I recalibrated our policy stance last month.”
The Fed’s 50-basis-point rate cut at its Sept 17-18 meeting was bigger than many analysts had expected. In remarks prepared for delivery to Davidson College in Davidson, North Carolina, Jefferson explained the reasoning behind the decision in much the same terms that Fed Chair Jerome Powell has done — as a bid to keep the economy healthy, while still fighting 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 said.
Inflation by the Fed’s targeted measure, the year-over-year change in the personal consumption expenditures index, was 2.2% in August, “much closer” to the Fed’s 2% goal than two years ago when it was 6.5%, Jefferson said.
“I expect that we will continue to make progress toward that goal.”
Meanwhile unemployment is at 4.1%, up only a “limited” amount from 3.8% a year ago, Jefferson said. Job growth has slowed, however. “The cooling in the labor market is noticeable,” he said.
In language that closely echoed the Fed’s post-meeting statement issued last month, Jefferson said he would watch incoming data, the outlook, and the balance of risks when considering further rate cuts.
“My approach to monetary policymaking is to make decisions meeting by meeting,” Jefferson said. “As the economy evolves, I will continue to update my thinking about policy to best promote maximum employment and price stability.”
