Federal Reserve Vice Chair Philip Jefferson kept the door open to another interest rate hike if inflation fails to improve, while maintaining that current policy remains appropriate for now. Speaking in prepared remarks at the Stanford Institute for Economic Policy Research on Thursday, Jefferson said the Fed’s current stance “should continue to support the labor market while allowing inflation to resume its decline toward our 2% target.” However, he added that “in a scenario where actual inflation does not start to cool down soon, I believe that it could be appropriate to reconsider our current policy stance,” underscoring that further tightening has not been ruled out.
Still, Jefferson’s remarks focused heavily on upside inflation risks. He warned that “the quick succession of shocks raises the risk that inflation becomes entrenched and inflation expectations become unanchored,” highlighting the combined effects of tariffs, Middle East tensions and higher energy prices. Jefferson said the key question is whether the recent rise in oil prices feeds into longer-term inflation expectations and results in a persistent increase in inflation.
Jefferson also highlighted artificial intelligence as both a potential source of productivity gains and a near-term inflation risk. While AI could eventually boost supply and ease price pressures, he warned that “optimism about AI may boost investment and consumption today, even before these productivity gains fully materialize.” His remarks suggest the Fed remains inclined to keep rates steady for now, but policymakers are prepared to tighten further if inflation fails to resume its path toward the 2% target.
