Fed's Jefferson Says Interest Rates Still 'Somewhat Restrictive'

By Matt Grossman

Federal Reserve governor Philip Jefferson said that, even after two quarter-point rate cuts since August, the central bank's policy stance is still leaning against elevated inflation, an assessment that could mean the Fed still has room to ease policy.

Speaking Friday afternoon in Frankfurt, Germany, Jefferson said that the Fed's positioning remains "somewhat restrictive," though it has moved closer to a neutral level that would neither restrain nor stimulate the economy.

"Given this, it makes sense to proceed slowly as we approach the neutral rate," Jefferson said.

Fed officials have diverged on where the central bank stands and how it should try to steer an economy facing both persistent price increases and a cooling labor market. The newest member of the Fed's board, Stephen Miran, has argued that inflation is likely to fade on its own and that the central bank should be cutting rates even faster, in light of demographic and other changes to the economy.

A group of reserve-bank leaders including Kansas City Fed President Jeffrey Schmid--a voting member of the Fed's policy committee this year--are pushing back, resisting the notion that the Fed should continue to bring rates lower at a time when inflation has been running above the Fed's 2% target for almost half a decade. Schmid and Miran both dissented against the quarter-point rate cut that the Fed opted for last week to bring rates down to a range of 3.75% to 4%, although their reasoning pulled in opposite directions.

Chair Jerome Powell said in a press conference after last week's meeting that another cut at the Fed's final 2025 meeting, in December, is "far from" a foregone conclusion. But he also hasn't ruled out the possibility. Jefferson, the Fed's vice chair, has voted in line with the Fed's majority decisions throughout his time at the central bank.

In his speech in Frankfurt, Jefferson also discussed how the rise of artificial intelligence could in the future shape the Fed's two economic goals, strong employment and stable prices. AI will likely disrupt some jobs but also create new opportunities, he said, leaving the overall effect "highly uncertain."

AI's influence on inflation might also break either way, Jefferson said. If the technology allows workers to operate more productively, businesses' costs could fall, exerting downward pressure on prices, he suggested. On the other hand, companies' efforts to scale up their use of the technology could push up prices for related products and services, Jefferson said.

"What do these still-developing labor and price effects mean for monetary policy? The short answer is that it is likely still too soon to tell," Jefferson said.

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

November 07, 2025 07:15 ET (12:15 GMT)