Jefferson sees disinflation resuming, emphasizes data-dependent policy
Federal Reserve Vice Chair Philip N Jefferson expressed cautious optimism about the economic outlook, anticipating a return to 2 percent inflation and continued sustainable growth. Speaking on February 6, 2026, he emphasized a data-dependent approach to monetary policy and discussed supply-side disinflation dynamics.
Resilient growth and balanced labor
Federal Reserve Vice Chair Philip N Jefferson expressed cautious optimism about the economic outlook, noting signs of labor market stabilization, a path toward the 2 percent inflation objective, and continued sustainable growth.
Gross domestic product (GDP) expanded at an annual rate of 4.4 percent in Q3 2025, driven by strong consumer spending.
For 2026, Jefferson expects growth similar to last year's estimated 2.2 percent, supported by economic resilience and AI investment.
The unemployment rate stood at 4.4 percent in December 2025. While nonfarm payrolls declined by 22,000 per month over the final three months of last year, private payrolls rose by 29,000 per month excluding government employment.
Jefferson views the labor market as roughly in balance, with a low-hiring, low-firing environment, and expects the unemployment rate to hold steady throughout 2026.
Inflation's stubborn path and policy
Disinflation progress has stalled over the past year, with inflation remaining elevated relative to the 2 percent target.
The PCE price index rose 2.9 percent for the 12 months ended December 2025, and core prices increased 3 percent, similar to late 2024 levels.
This stall is mainly attributed to tariffs on some goods, offsetting a decline in services price inflation.
Jefferson expects disinflation to resume this year once increased tariffs pass through fully, aided by projected strong productivity growth.
He supported the FOMC's recent decision to maintain the federal funds rate.
This followed 175 basis points of reductions since mid-2024, positioning the policy rate broadly in the range of neutral rate estimates and maintaining a balanced approach to the dual mandate.
Productivity's complex role
The pandemic demonstrated the critical role of supply dynamics in shaping inflation, a lesson now extending to structural productivity growth.
While robust productivity can support expansion without inflationary pressure, an immediate demand surge from AI investment could temporarily elevate prices.
Monetary policy must carefully balance supply and demand to ensure productivity gains translate into disinflation, potentially influencing the neutral rate.