(Oct 9): US Federal Reserve (Fed) vice-chair Philip Jefferson said risks to the central bank’s employment and inflation goals are now closer to equal.

“The balance of risks to our two mandates has changed — as risks to inflation have diminished and risks to employment have risen, these risks have been brought roughly into balance,” Jefferson said on Tuesday in prepared remarks for an event at the Davidson College in North Carolina. 

Jefferson, in his first public speech since May, said he will be assessing incoming economic data and the balance of risks “when considering additional adjustments to the federal funds target range”. He added that he is making decisions on a meeting-by-meeting basis. 

Fed officials lowered interest rates at their meeting last month for the first time since the onset of the Covid-19 pandemic, reducing them by a half percentage point. The move came amid further signs of cooling inflation and growing concerns about the labour market. 

Forecasts released the same day showed the median projection from Fed officials called for an additional 50 basis points in reductions this year, implying smaller, quarter-point cuts at each of their two remaining meetings in 2024. 

The vice-chair said the economy is growing at a “solid pace”, even as the labour market has slowed from an overheated state. He said inflation is much closer to the Fed’s 2% target and should continue to cool towards it.

A surprisingly strong jobs report released last week tempered fears around the labour market. Employers added 254,000 workers to payrolls in September, while figures for July and August were revised higher. The robust pace of hiring helped bring the unemployment rate down to 4.1%.

“The good news is that the rise in unemployment has been limited and gradual, and the level of unemployment remains historically low,” Jefferson said. “Even so, the cooling in the labour market is noticeable.”

The jobs news last week drove investors to pare bets on another large rate cut at the Fed’s next meeting in November. Markets now see a quarter-point reduction as the likeliest outcome. 

A handful policymakers, including New York Fed president John Williams, have indicated continued support for further rate reductions, albeit at a slower pace, even after the stronger-than-expected September jobs report. That data led a few Fed watchers to call on the central bank to stop cutting rates. 

Jefferson also spoke at length about the history of the discount window, the Fed’s primary emergency lending facility. Following the collapse of Silicon Valley Bank and other regional lenders last year, policymakers have encouraged all banks to sign up to the discount window and to practise using it, should they need it in a liquidity emergency.

The Fed is also in the process of collecting comments from the public on various aspects of discount window use and functionality, Jefferson said.

Before joining the Fed’s board of governors in 2022, Jefferson was the vice-president for academic affairs and dean of faculty, as well as an economics professor, at the Davidson College.

Uploaded by Tham Yek Lee