Jefferson on economic outlook: Growth continues, inflation persists

Federal Reserve Vice Chair Philip N. Jefferson presented his economic outlook, noting continued growth, a roughly balanced labor market, and inflation above the 2 percent target. He discussed the implications for monetary policy and regional economic developments in Southeast Michigan.

Resilient growth, stubborn inflation

Vice Chair Jefferson indicated the U.S. economy continues to grow, driven by resilient consumer spending and healthy business investment.

Gross domestic product expanded about 2 percent last year, with a similar or slightly faster rate expected this year, supported by high-tech capital investment, new business formation, and deregulation.

However, significant headwinds, such as the Middle East conflict and elevated energy prices, pose considerable uncertainty to the global outlook.

Inflation remains above the Federal Reserve's 2 percent target, having stalled over the past year, mainly due to tariffs.

The personal consumption expenditures (PCE) price index rose an estimated 2.8 percent for the 12 months ending in February, with core prices (excluding food and energy) up 3.0 percent.

While housing services inflation has declined, this has been offset by increases in core goods inflation, and core services inflation excluding housing has largely moved sideways.

Geopolitical tensions and trade policy uncertainty present upside risks to the inflation forecast.

Labor market finds its footing

The labor market, after a gradual cooling in 2025 characterized by slower labor force growth and reduced hiring, has shown signs of stabilization in recent months.

The unemployment rate, which crept up to 4.5 percent in November 2025, edged lower to 4.3 percent in March, near its estimated natural rate.

Job growth has been uneven, with 178,000 jobs added in March and a three-month average of about 70,000 jobs per month in the first quarter.

This subdued pace is considered within the breakeven range necessary to keep the unemployment rate steady.

Other signs of stabilization include rising prime-age labor force participation and low unemployment insurance claims.

Jefferson described the current labor market as a 'low-hire, low-fire' state, where firms are cautious about hiring rather than engaging in widespread layoffs.

The ratio of job openings to unemployed persons appears to be flattening, suggesting a potential balancing of labor supply and demand.

Policy poised, local challenges remain

Jefferson's cautious optimism on policy effectiveness is tempered by persistent inflation risks and potential labor market fragilities.

While the current stance is deemed 'well-positioned' to respond to various outcomes, the lack of further rate adjustments in a 'neutral' range suggests a wait-and-see approach that might prolong economic uncertainty.

The Detroit example, despite its resilience and diversification into healthcare, underscores how national economic shifts and energy price volatility continue to impact local recovery, highlighting the uneven nature of the broader economic picture.