Fed officials left their benchmark policy rate unchanged in a range of 4.25% to 4.5% at their meeting last week. Fed chair Jerome Powell signaled officials will likely be on hold as they wait for more progress on lowering inflation toward the central bank’s 2% goal, and for clarity over US President Donald Trump’s economic policies.
The decision to hold rates steady followed three consecutive interest-rate cuts over the final months of 2024 that lowered borrowing costs by a full percentage point.
Jefferson said Tuesday he expected the downward path for inflation to continue to be bumpy, but expressed optimism that price growth will continue to cool. Recently released figures showed the Fed’s preferred measure of underlying inflation was muted in December 2024.
“With supply and demand conditions having moved into better balance, wage growth slowing to a more sustainable pace and longer-term inflation expectations remaining well anchored, I see a path for inflation to continue its progress toward our longer-run goal,” Jefferson said.
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He described the US economy broadly as starting 2025 in a good position. He cited resilient consumer spending and said the labour market was solid with signs that downside risks had abated compared with mid-2024.
Still, Jefferson said he expects economic growth this year to be slightly lower than in 2024 as households and businesses face uncertainties.
Though Jefferson didn’t mention Trump or any specific policies, many questions surround the new administration’s economic plans, particularly for tariffs and immigration, and how those could ripple through the economy.
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Just this week, Trump agreed to delay plans to levy 25% tariffs on Canada and Mexico for a month, heading off a trade conflict for now. However, a 10% tariff on goods from China went into effect at midnight and Beijing retaliated with several measures.
“There is always a great deal of uncertainty around any economic forecast, and currently we face additional uncertainties about the exact shape of government policies, as well as their economic implications,” Jefferson said.
He said if consumer spending holds up, that would cause him to revise up his outlook for economic growth.
