Askume, Oct 8 – The Federal Reserve’s 50 basis point interest rate cut last month was “timely” and was neither reactive nor proactive, Federal Reserve Vice Chairman Philip Jefferson said on Tuesday.
Jefferson, of Davidson College in North Carolina, said it was a “timely move” and “consistent with the Fed’s two goals of achieving 2 percent inflation and maximum employment.”
He said the Fed successfully accomplished its first mission by reducing inflation, allowing the Fed to “focus more on the second aspect of its mission.”
Jefferson joined most of his colleagues in voting to lower the Fed’s policy rate in September, marking a turning point in a two-year battle against inflation that has pushed U.S. borrowing costs to their highest level in decades.
“Our goal over the last two years has been to reduce inflation without causing an unreasonable or unsustainable increase in unemployment,” Jefferson said. “That’s why we’ve kept policy rates very high for a long time, and the labor market has been performing very well.”
In the past, the Federal Reserve’s interest rate hikes in response to inflation did not cause the unemployment rate to rise, but kept it stable below 4% most of the time.
“Labor market performance gives us room to keep policy in the restrained zone for longer,” Jefferson said, but he added that rising unemployment — currently at 4.1% — and falling inflation were already close to the Fed’s 2% target so it is appropriate to “rebalance” policy.
