Federal Reserve Vice Chairman Jefferson: The U.S. economy remains resilient and should cautiously adjust interest rates

According to the Zhitong Finance APP, Federal Reserve Vice Chairman Philip Jefferson stated that as long as the economy and labor market remain strong, it is appropriate for policymakers to exercise caution when adjusting interest rates.

In a speech on Tuesday, Jefferson said, "I still believe that as we gradually shift to a more neutral stance, a gradual reduction in the monetary policy constraints on the economy is the most likely outcome. I think we do not need to rush to change our stance."

Federal Reserve officials kept the benchmark policy rate unchanged in the range of 4.25% to 4.5% at last week's meeting. Fed Chairman Jerome Powell indicated that officials might hold steady, waiting for inflation to further decline toward the central bank's 2% target and for more clarity on President Trump's economic policies.

The decision to maintain interest rates was made after three consecutive rate cuts in the last few months of 2024, which lowered borrowing costs by a full percentage point.

Jefferson stated on Tuesday that he expects the path of declining inflation to remain bumpy but is optimistic that price growth will continue to cool. Recently released data showed that the core inflation measure favored by the Fed was moderate in December.

Jefferson said, "As supply and demand conditions trend toward better balance, wage growth slows to a more sustainable pace, and long-term inflation expectations remain stable, I believe inflation will continue to move toward our long-term goal."

Overall, he believes the U.S. economy is off to a good start in 2025. He mentioned that consumer spending is resilient and stated that the labor market is solid, with downside risks having diminished compared to mid-2024.

Nevertheless, Jefferson indicated that he expects economic growth this year to be slightly below that of 2024, as households and businesses face uncertainty.

Although Jefferson did not mention Trump or any specific policies, there are still many questions regarding the new government's economic plans, particularly tariffs and immigration policies, and the potential impact of these policies on the economy. Just this week, Trump agreed to postpone the plan to impose a 25% tariff on Canada and Mexico for a month, temporarily avoiding a trade conflict. However, a 10% tariff on Chinese goods took effect at midnight.

Jefferson said, "Any economic forecast carries a great deal of uncertainty, and we currently face uncertainty regarding the specific forms of government policies and their economic impacts."

He stated that if consumer spending remains strong, he would revise upward his economic growth expectations