Jefferson outlines economic outlook, warns of inflation risks
Federal Reserve Vice Chair Philip N. Jefferson shared his updated economic outlook, noting continued growth but persistent inflation pressures. Speaking in Dallas, he discussed implications for monetary policy and the economy's exposure to elevated energy prices.
Resilient growth, stubborn inflation
Vice Chair Jefferson sees the U.S. economy continuing to grow, driven by resilient consumers and healthy business investment.
Gross domestic product expanded about 2 percent in 2025, in line with its potential pace.
The labor market is roughly in balance, with unemployment at 4.4 percent last month, though job growth has slowed to a modest three-month average of 6,000 nonfarm payroll gains in February.
Inflation, however, remains above the Federal Reserve's 2 percent target.
The personal consumption expenditures (PCE) price index rose 2.8 percent for the 12 months ended in February, with core PCE at 3.0 percent.
Jefferson noted that while housing services inflation has declined, core goods inflation has increased, and core services inflation outside of housing has largely moved sideways over the past year.
He expects overall inflation to move higher in the short term, reflecting a rise in energy prices stemming from the conflict in the Middle East, which complicates the dual mandate of maximum employment and price stability.
Policy stance and energy's dual impact
Vice Chair Jefferson affirmed the current policy stance is well-positioned for an outlook with downside labor market risks and upside inflation risks.
The FOMC held the federal funds rate steady last week, after 175 basis points of reductions over the past 18 months.
This policy aims to support the labor market and facilitate inflation's return to target.
Jefferson noted elevated energy prices, especially from the Middle East conflict, could weigh on consumer and business spending.
He emphasized that policy decisions consider the national economy broadly, not specific sectors, while monitoring if higher energy costs become embedded in prices.
Texas: Buffered, but not immune
Despite the U.S. being a net energy exporter, elevated prices present a complex challenge.
Energy-producing regions like Texas may see some offsetting benefits from increased activity.
However, higher costs will still constrain household and business spending across all regions, demonstrating broad economic vulnerability.