Jefferson flags global risks, upside inflation pressures
Federal Reserve Vice Chair Philip N. Jefferson outlined three global economic developments, including elevated energy prices and AI advancement, that could impact the U.S. economy. He noted persistent inflation risks and a stable labor market in his outlook.
Global forces shaping the outlook
Federal Reserve Vice Chair Philip N. Jefferson highlighted three significant global developments influencing the U.S. economic outlook.
The first is the substantial increase in energy prices, driven by the Middle East conflict, which poses downside risks to global growth and upside risks to inflation.
He noted that while the U.S. benefits from being a net energy exporter, it is not entirely immune, with domestic gasoline prices remaining elevated.
The second development is the rapid advancement of artificial intelligence (AI) technology.
As a central banker, Jefferson expressed optimism about AI's potential to boost productivity and economic growth, while simultaneously monitoring its evolving effects on the labor market and overall inflation dynamics.
The third factor he is tracking involves the persistent disruptions to global trade flows, which have impacted both supply chains and price levels worldwide since the pandemic began.
These interconnected global forces form a complex backdrop against which the U.S. economy is currently operating.
U.S. economy and policy path
For the U.S. economy, Jefferson noted solid recent growth, though he expects a more modest pace this year due to high energy costs.
The labor market is broadly stable, with risks somewhat skewed to the downside.
Disinflation stalled last year, partly from tariffs, and recent inflation rose due to energy costs.
He projects inflation to decline later this year as tariff and energy shock effects diminish, but views upside risks to his inflation outlook.
Jefferson reaffirmed the FOMC's commitment to its 2 percent target, aligning with the dual mandate.
The FOMC maintained the federal funds rate target at 3 ½ to 3¾ percent at its late April meeting, a policy stance he believes is well-positioned to respond to incoming data and evolving risks.