Fed’s Jefferson says monetary policy is ‘well positioned’ amid inflation risks

by Michael S. Derby

May 27 (Reuters) – Federal Reserve Vice Chairman Philip Jefferson said on Wednesday that the current structure of monetary policy is in the right place in an environment where upside risks to the inflation outlook remain.

The current setting of the federal funds target rate range of 3.5% to 3.75% ensures that the central bank is “well positioned to respond to economic developments based on incoming data, the evolving outlook and the balance of risks,” Jefferson said in the text of his speech ahead of the 2026 Bank of Japan-Monetary Institute and Economic Studies Conference in Tokyo.

Jefferson, the central bank’s second-in-command, stopped short of saying what’s next for interest rate policy, noting by the June 16-17 Federal Open Market Committee meeting: “I am not preconceived about the next meeting and look forward to discussing with my colleagues the policy necessary to best achieve our dual mandate objectives.”

Jefferson’s comments mark the first since Kevin Warsh was sworn in as the new chairman of the Fed last Friday, replacing Jerome Powell, who will serve as governor for a term.

Warsh, formerly a hawk, has expressed a strong interest in lowering interest rates as he seeks the Fed’s top job; But few think he can do so this year, given the surge in inflation tied to President Donald Trump’s import tax hikes and war in the Middle East.

In his speech, Jefferson noted that although the United States produces significant amounts of oil, it is not completely isolated from the energy shortages caused by the war. Jefferson expects inflation pressures to ease towards the end of this year, but said there are also upside risks to this outlook.

He said the U.S. economy has turned out to be a solid performer amid a stable job market defined by low hiring and layoffs. He added that labor market risks are to the downside.

(Reporting by Michael S. Derby; Editing by Sanjeev Miglani)