Raise interest rates or stay on hold? When hawks are everywhere, the Fed's "second-in-command" speaks out

Raise interest rates or stay on hold? When hawks are everywhere, the Fed's "second-in-command" speaks out.

Federal Reserve Vice Chairman Philip Jefferson said on Thursday that if inflation does not cool down soon, it should consider raising interest rates, but he also said that the current state of monetary policy is good.

In remarks prepared for an event in Stanford, Calif., on Thursday, Jefferson said the Fed's current interest rate settings should continue to support the labor market while keeping inflation down.

But he also said, "If actual inflation does not start to cool in the short term, I think it may be time to reconsider our current policy stance to ensure that we deliver on our commitment to achieve price stability." Jefferson made it clear that he was not in the "hawkish camp" and called the current Fed policy "in a good place" - a phrase commonly used by central bankers to mean they see no urgent need to change policy.

However, in his speech, there were clearly more concerns about inflation than considerations about the job market, which is currently performing solidly. Jefferson noted that conflict in the Middle East could lead to higher energy prices, which would affect inflation.

He said recent declines in energy prices have helped lower inflation, but conflicts in the Middle East could lead to higher energy prices, which would affect inflation.

He said recent declines in energy prices had helped lower inflation, but higher fuel prices would likely have a limited impact on demand but would exacerbate price pressures caused by last year's tariff hikes.

"A series of shocks are coming one after another, increasing the risk that inflation will become entrenched and inflation expectations will become unanchored. Whether the recent rise in energy prices will be transmitted to long-term inflation expectations and cause inflation to continue to rise is a key question." He said.

Jefferson also said that he is also paying close attention to the development of artificial intelligence (AI). If AI can quickly increase productivity, it will help alleviate inflation. But if stronger consumer and investment demand grows faster than productivity gains, it could exacerbate inflationary pressures.

Fed decision to face fierce debate The Federal Reserve will hold its next interest rate meeting on July 28-29. Traders have largely given up on expectations for a rate hike this month as data released this week showed U.S. consumer price inflation cooled in June.

Still, policymakers remain wary of over-reliance on single-month improvements, as inflation has trended in the wrong direction over the past few months. Some Fed officials already believe a rate hike is needed now, most notably Dallas Fed President Lori Logan's comments earlier on Thursday.

Logan said the current inflation has improved but is still insufficient, and called for a moderate increase in interest rates to advance anti-inflation goals. She is currently the Fed official who has expressed the clearest support for raising interest rates.

"I currently believe that a moderate increase in interest rates will be more helpful in balancing the prospects and risks of the FOMC's dual mission goals (full employment and price stability). Every month of inflation above the target level continues to increase the pressure on Americans' living budgets," Logan said.

In addition, Kansas City Fed President Jeffrey Schmid warned on the same day that inflation is his biggest concern given that inflation may accelerate further in the coming months. He also cautioned against taking for granted that inflation is temporary.

Federal Reserve Governor Lisa Cook also said on Wednesday that she was prepared to take action if inflation did not start to slow soon, although she was willing to wait a little longer to see how things panned out. This indicates that there will be a fierce debate within the Fed at the interest rate meeting in two weeks. (

#Stocks #AI #Fed #Trade