Interest rates could stay high “for longer,” Fed Vice Chairman Philip Jefferson warns

In a speech, Jefferson said he expects inflation to proceed to slow this 12 months. However, he omitted a reference to the likelihood of future rate cuts that he had mentioned in an earlier speech in February. Instead, he said his forecast is that inflation will cool even when the Fed’s key rate of interest “remains stable at its current level.”

If elevated inflation proves more persistent than expected, Jefferson added, “it will be appropriate” to maintain rates of interest at current levels “for a longer period” to assist bring inflation all the way down to the Fed’s 2% goal level . U.S. consumer inflation, measured year-over-year, was most recently at 3.5%.

Jefferson’s comments appeared to open the door to the prospect that the Fed will walk back its forecast, made at its last policy meeting in March, that it will make three quarter-point cuts this 12 months in its key rate of interest, which is around 1.5 percent 5, 3%. Chairman Jerome Powell will speak afterward Tuesday and will comment on the Fed’s potential rate cut schedule.

In February, Jefferson said that if inflation continued to slow, “it will probably be appropriate” for the Fed to chop rates of interest “at some point this year” – a phrase Powell has also used. Still, that phrase was excluded from Jefferson’s remarks Tuesday.

Fed officials have responded to recent reports that the economy stays strong and Inflation is undesirably high by emphasizing that they see little urgent have to lower their key rate of interest within the foreseeable future. Wall Street traders had long expected the central bank to chop rates of interest at its June meeting, but now don’t expect the primary cut until September.

The government announced this on Monday Retail sales skyrocketed Last month, the last sign of that robust employment growth and better stock prices and real estate values ​​ensure solid household spending. Strong consumer spending can keep inflation high because it will probably encourage some firms to charge higher prices although they know that many individuals can pay higher prices.

In his speech on Tuesday, Jefferson said the Fed estimated that its preferred inflation indicator, to be released next week, rose to 2.7% year-on-year in March, up from 2.5% in February. Such a rise would reflect a rise within the widely followed consumer price indexwhich rose from 3.2% to three.5% in March.

“While we have seen significant progress in reducing inflation, the job of getting inflation back to 2% sustainably is not yet done,” Jefferson said.