[U.S. Interest Rate] Federal Reserve Vice Chair Jefferson: Rising energy prices still have limited impact on inflation; current interest rate stance remains appropriate

Federal Reserve Vice Chair Philip Jefferson stated that the rise in energy prices triggered by the Iran conflict is expected to push up inflation in the short term, but the current interest rate levels allow the Fed to more calmly assess the timing and magnitude of future policy adjustments. He emphasized that it is still too early to judge the overall impact of the situation in the Middle East on the economy.

Jefferson pointed out during a speech on Thursday (the 26th) that the Fed is closely monitoring developments in the Middle East and the global energy market.

“High energy prices over the long term may bring inflationary pressure to various other products, and as policymakers, I will closely watch whether these rising costs will be reflected in the overall price system of the economy.”

He added that so far, the direct impact of rising oil prices on inflation has been relatively limited, but consumers are noticeably feeling the increase in prices at the gas station. Jefferson warned that if energy prices remain high, it could suppress consumer and business spending, having a more significant impact on the economy; conversely, short-term supply disruptions “are unlikely to have a significant impact on the economy for more than a quarter or two.”

Current assessment of the impact of rising energy prices on the economy is still premature

Jefferson stated that although the possibility of a prolonged conflict in the Middle East brings considerable uncertainty to the global economic outlook, he still believes that the Fed’s current policy stance is “appropriate,” allowing decision-makers to observe economic developments and decide on subsequent actions accordingly. Fed Chairman Powell also mentioned earlier this month that it is still too early to assess the impact of rising energy prices on the overall economy.

Regarding employment and economic outlook, Jefferson pointed out that the U.S. job market is currently roughly balanced, but downside risks have increased. He predicts that the unemployment rate will remain around the current 4.4% this year, with economic growth roughly in line with or slightly faster than last year. However, he reiterated that there remains a high degree of uncertainty regarding the overall economic outlook.

Jefferson also mentioned that the uncertainty surrounding tariff policies, combined with the recent surge in energy prices, is making it more complex for the Fed to balance the dual goals of inflation control and full employment.

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