Jefferson: Cautious optimism for economy, productivity crucial for disinflation

At the start of 2026, Vice Chair Jefferson expressed cautious optimism, noting signs of a stabilizing labor market and continued sustainable economic growth.

GDP rose at an annual rate of 4.4 percent in the third quarter of 2025, driven by strong consumer spending and business investment, including in artificial intelligence.

The unemployment rate stood at 4.4 percent in December 2025, with private payrolls increasing by an average of 29,000 per month over the final three months of last year.

However, progress on disinflation has stalled, with the personal consumption expenditures (PCE) price index rising 2.9 percent and core prices 3 percent for the 12 months ended December 2025. This stall is mainly attributed to tariffs on some goods, offsetting declines in services price inflation.

Jefferson supported the FOMC's recent decision to maintain the federal funds rate, following 175 basis points of reductions over the past 1.5 years, including three cuts late last year.

These adjustments positioned the policy rate broadly in the range of neutral estimates, balancing employment risks with inflation.

He then discussed supply-side influences, recalling the critical role of global disruptions during the COVID-19 pandemic.

These events, including geopolitical factors, pushed total PCE prices to a high of 7.2 percent in June 2022, challenging standard Phillips curve models.