Federal Reserve Vice Chair warns of dual challenges in employment and inflation, Dallas Fed President calls for cautious rate cuts

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Federal Reserve Vice Chair Philip Jefferson reiterated his concerns on Friday, saying that the Fed is facing two major challenges simultaneously: a weakening job market and inflation above target. On the same day, Dallas Fed President Lorie Logan stated that the severity of the inflation issue outweighs employment, calling for caution regarding further rate cuts.

In a speech at the Philadelphia Drexel Economic Forum, Jefferson essentially repeated his remarks from September 30. He noted that uncertainty about the economic outlook is particularly high at the moment, but he expects this uncertainty to ease as White House policies are gradually finalized.

"As these policy changes gradually become finalized, and as we have more time to assess their impact on the economy, I expect the overall uncertainty of the U.S. economy to decrease."

"Even in the event of a U.S. government shutdown, the Federal Reserve still has enough data to do its job well."

Earlier this month, Fed policymakers voted to lower the benchmark interest rate—the first rate cut of 2025—and projected two more cuts this year, aiming to maintain downward pressure on inflation while supporting the job market. Fed officials will meet again on October 28-29 for the next policy meeting. Jefferson stated:

"Regarding the future path of interest rates, I will continue to assess the appropriate stance of monetary policy based on the latest data, changes in the economic outlook, and the balance of risks. I will also consider and evaluate government policies and their impact on the economy."

Dallas Fed President: Inflation is a bigger issue than employment, rate cuts should be approached with caution

Dallas Fed President Logan said on Friday that the Fed's gap in achieving its inflation target is greater than the gap for maximum employment, and reiterated that caution should be exercised regarding rate cuts.

Speaking at a conference in Mexico City, Logan said,

"Currently, we are furthest from the inflation target, and projections show that it will take some time to get back to 2%. Of course, there are many uncertainties in the world."

Logan said that when assessing the U.S. labor market, she mainly focuses on the unemployment rate rather than employment figures. She added that the unemployment rate is close to what many economists expect for the long term. The unemployment rate was 4.3% in August; due to the federal government shutdown, September's data was not released on Friday.

Since the end of last year, inflation levels have remained high. The Fed cut rates last month after keeping borrowing costs unchanged for some time. The marked slowdown in job growth has raised concerns about a weakening labor market. However, some officials remain mainly focused on inflation, which has stayed above the Fed's 2% target for more than four years. Logan said on Friday:

"We do indeed need to be cautious about further rate cuts going forward."

She also stated at another event the previous day that with inflation still above the Fed's target and monetary policy not yet clearly restrictive, she prefers a cautious approach.

Last week, Logan attracted widespread attention from Wall Street and officials within the Federal Reserve by suggesting that the Fed should consider replacing the current federal funds rate with a more widely used market benchmark indicator.

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