Fed Vice Chairman Jefferson: Employment Risks Are Increasing

Fed's Warnings About Employment

On October 23, 2023, Federal Reserve Vice Chair Philip Jefferson emphasized that downside risks to employment have increased. Jefferson noted that policymakers need to take more cautious steps as interest rates approach neutral levels.

Changes in Economic Risk Balance

In the text of a speech he will give at the Kansas City Fed, Jefferson stated, "I have observed that the balance of risks in the economy has changed in recent months. Compared to the upside risks in inflation, I clearly see that downside risks to employment have significantly increased." This situation indicates that the options for interest rate cuts or holding rates steady may remain on the agenda for the next Fed meeting in December.

Expectations for Interest Rate Cuts

Market pricing shows that the recent hawkish stance of Fed officials has reduced the probability of an interest rate cut in December from 100 percent to 40 percent. Jefferson indicated that he expects a slight increase in the unemployment rate by the end of the year.

Signs of Stalling in Inflation Target

Jefferson also stated that the Fed's progress towards its 2 percent inflation target appears to have stalled recently, largely due to the impact of tariffs.