“Any future adjustments in policy should be determined by carefully examining trends in the data, the evolving outlook, and the balance of risks,” Jefferson said in prepared remarks for the University of Virginia’s Darden School of Business.
With financial markets “reassessing” the outlook amid rising bond yields, Jefferson added that “my colleagues and I will need to come to our own judgment, which may take more time,” before deciding on the next move.
For live updates on US Markets, click here
“With more data in hand, such trends may allow for better discernment, as may the appropriate stance of monetary policy,” he said further.
The Fed raised its benchmark rate by a quarter-percentage point to 3.75%-4.00% at its September 15-16 meeting. Policymakers’ projections indicated one more increase before the end of 2026.
New York Fed President John Williams on Tuesday also said that policymakers had time to assess additional data, though he still expected another increase before year-end. Financial markets broadly expect the Fed to leave rates unchanged at its October 27-28 meeting.Jefferson expects inflation to remain “elevated” in the near term “before resuming its decline toward our 2% goal as the effects of energy and other price shocks fade.”
However, he added: “I view risks to my inflation forecast as tilted to the upside due to recent geopolitical developments and stronger-than-anticipated aggregate demand.”
Jefferson described risks to economic activity and employment as “roughly balanced”. He said the economy was “likely to show continued resilience … by adding jobs and extending a six-and-a-half-year-long expansion.”
Fed’s Kashkari expects more rate hikes, but is unsure about October
Minneapolis Fed President Neel Kashkari said on Thursday that additional rate increases would probably be necessary to restrain the economy through 2027, although he was uncertain whether the next move should come in October.
“I’m open-minded” about how the Fed proceeds, Kashkari told Reuters. He added that “I don’t have a strong view” on whether policymakers should raise rates at their October 27-28 meeting. The Fed’s final meeting of the year is scheduled for December 8-9.
Kashkari, who voted for last month’s rate increase, projected one more quarter-point hike this year and another in 2027.
Since the September meeting, “the data that I’ve gotten suggests the economy is doing even better than I anticipated” while “inflation is still too elevated,” he said.
“If the economy proves to just be incredibly resilient and inflation therefore is probably stickier than I appreciate, then policy could need to go higher yet than I’m anticipating at this moment. But I don’t know” whether that scenario will materialize, Kashkari said.
The Fed raised rates last month to curb inflation that has exceeded its 2% target for more than five years. Kashkari had also dissented in favor of an increase at the July policy meeting.
Although the latest rate increase contributed to a sharp rise in long-term borrowing costs, Kashkari said monetary policy was not doing much to restrain the economy.
“The labour market looks quite healthy right now. It seems like the economy is doing quite well. And when I look at that constellation, that says, boy, policy is probably not particularly restrictive right now,” he said.
Kashkari said financial markets were functioning properly despite recent volatility and that the Treasury market had absorbed the repricing without disruption.
“I’m not seeing any evidence of systemic risk” in markets, he said. “I do think the banking sector bears watching closely, and we are (watching)” because of the rapid shift in borrowing costs.
He also said monetary policy under Fed Chair Kevin Warsh was influencing markets.
“If you look at long rates moving as much as they’ve moved over the last several weeks, part of that is real economic developments,” Kashkari said. “I think part of that is hey, the Fed is really serious, the Warsh Fed, it’s not talk, the Warsh Fed is really serious about controlling inflation.”
“I’ve got some confidence that inflation’s heading back down over the next couple of years to our 2% target, but shocks keep surprising us,” he added.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)
