Jefferson: Global risks complicate US inflation path
Federal Reserve Vice Chair Philip N Jefferson highlighted global economic developments, including elevated energy prices and trade disruptions, as factors complicating the outlook for the US economy. Speaking at the 2026 Bank of Japan-IMES Conference, he outlined his views on growth, inflation, and the path of monetary policy.
Global headwinds and US resilience
Federal Reserve Vice Chair Philip N Jefferson outlined three global developments impacting the economic outlook.
The first is the significant increase in energy prices, driven by the Middle East conflict.
This poses downside risks to global growth and upside risks to inflation.
While the US, as a net energy exporter, has some buffer, it is not immune; US gasoline prices have risen, and Jefferson is monitoring their impact on consumer spending.
The second development is the rapid advancement of artificial intelligence (AI) technology.
Jefferson is optimistic about AI's potential for productivity and growth, but also monitors its effects on labor markets and inflation.
The third factor involves persistent disruptions to global trade flows, which have, since the pandemic, affected supply chains and price levels.
These global challenges form a complex backdrop for the US economy.
US economy and policy stance
Focusing on the US economy, Jefferson noted solid recent growth, but expects a more modest pace this year due to high energy costs.
The labor market is broadly stable, with low hiring and firing, though he sees some downside risks.
Disinflation stalled over the past year due to tariffs, and recent inflation rose from higher energy costs.
Jefferson expects inflation to decline later this year as these effects wane, but views upside risks to his outlook.
He reaffirmed the Federal Open Market Committee's (FOMC) commitment to its 2 percent target, consistent with the dual mandate.
At its late April meeting, the FOMC maintained the federal funds rate target range at 3-1/2 to 3-3/4 percent.
Jefferson believes this policy stance allows the Fed to respond to economic developments based on incoming data, without prejudging future decisions.
Inflation's stubborn path
Jefferson's speech highlights the persistent external pressures, particularly from energy and trade, that continue to complicate the Federal Reserve's inflation fight.
His cautious outlook, emphasizing upside risks despite expected declines, underscores the ongoing vigilance required to steer inflation back to target.
The Fed's data-dependent stance remains crucial in navigating a global environment fraught with unpredictable shocks.