Fed Vice Chairman Jefferson: Employment Risks Are Increasing

Fed's Warnings on Employment

U.S. Federal Reserve Vice Chair Philip Jefferson emphasized on October 23, 2023, that downward risks in employment have increased. Jefferson noted that, due to interest rates approaching neutral levels, policymakers need to tread more carefully.

Changes in the Economic Risk Balance

In the text of his 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 upward risks in inflation, I see that the downward risks in employment have clearly increased." This situation suggests that the options of interest rate cuts or keeping rates steady may remain on the agenda during the next Fed meeting in December.

Expectations for Interest Rate Cuts

Market pricing shows that the likelihood of interest rate cuts in December has dropped from 100 percent to 40 percent due to the recent hawkish stance of Fed officials. Jefferson mentioned that he expects a slight increase in the unemployment rate by the end of the year.

Signs of a Stalemate in Inflation Target

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