US employers added 165,000 jobs in October. For the Fed’s vice-chair, the more pressing question is how far higher energy costs will spread through the economy.
Federal Reserve vice-chair Philip Jefferson said US inflation would carry the most weight when he decides whether to back another interest rate rise. Speaking in San Diego on Friday 13 November, he left open how he would vote at the Fed’s meeting on 8 and 9 December.
Jefferson told an economics roundtable at the University of California San Diego that he expected unemployment to stay close to October’s 4.1%, a level he considers consistent with full employment. The US economy grew at an annualised rate of 3.4% in the three months to September.
The Fed’s preferred inflation measure, the personal consumption expenditures price index, rose 3.6% in the year to September, against a target of 2%. Even after excluding food and energy, prices rose 3.1%. Jefferson pointed to airfares as one place where higher energy costs were already reaching consumers.
A split over the next rate rise
The Fed raised its benchmark rate by a quarter of a percentage point in September. On 28 October, Jefferson voted with the 10–2 majority to keep it in a range of 3.75% to 4%. Lisa Cook and Beth Hammack wanted another quarter-point increase.
Fed governor Christopher Waller set out a case for moving faster on Tuesday. He said a half-point rise in December deserved consideration if the October consumer price index, excluding food and energy, rose by about 0.3% or more on the month. Figures released later that day showed a 0.3% rise for the third month running.
How AI investment is affecting prices
Jefferson also drew a link between the rush to build data centres and the price of consumer goods. Companies equipping those centres need some of the same components, including memory chips. He expects the pressure on prices to ease as suppliers catch up.
Over time, Jefferson expects artificial intelligence to raise productivity. If those gains last and businesses seek more funding to invest, borrowing costs could rise over the longer term. For workers, he identified a different risk. Unemployment could climb if companies replace jobs faster than people can retrain for new ones.
