Risks to unemployment have increased, but Fed should move ‘slowly’

Federal Reserve vice chair Philip Jefferson said Monday that downside risks to employment have increased compared to upside risks to inflation, but that the central bank should move “slowly” when it comes to cutting rates.

“The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy,” Jefferson said in a speech in Kansas City. “The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.”

Jefferson stressed that heading into the Fed’s next policy meeting, on Dec. 9 and 10, it remains unclear how much government data the officials will get. The Labor Department announced it will release the September jobs report on Thursday, but it’s unclear what, if any, other data will be released before Fed officials meet.

He noted he always takes a “meeting-by-meeting approach,” adding that right now this is “an especially prudent approach.”

While Jefferson indicated that inflation may have stalled around 3% due to tariffs, he said he still thinks it’s reasonable to expect this to be a one-time increase in prices, rather than an ongoing inflation problem. He added, however, that he is watching the situation carefully.

Read more: How jobs, inflation, and the Fed are all related

He sees a gradual cooling in the job market, acknowledging the lack of official government data, but Jefferson pointed to unemployment insurance claims received from states that has largely moved sideways in recent weeks. He also noted that anecdotal evidence about the job market has been mixed.

Jefferson’s comments come as the Fed looks increasingly divided on whether to cut rates further. Other voting members, including Kansas City Fed president Jeff Schmid and Boston Fed president Susan Collins, have expressed concern about inflation and a preference to hold rates steady.

Markets are pricing in just a 42% chance of a rate cut next month, down from a 94% chance about a month ago.

Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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