Jefferson sees upside inflation risks, notes yields rose since the hike

Victoria Shinder02 October 2026, 07:482 min read

Federal Reserve Vice Chair Philip Jefferson said on 1 October that he sees upside risks to inflation, which has exceeded the Fed's 2% target for more than five years, while viewing the risks to growth and employment as roughly balanced. He spoke at the Darden School of Business at the University of Virginia, where he earned his doctorate.

Jefferson described an economy shaped by rapid adoption of artificial intelligence, geopolitics and demographics, and hit by what he called a cascade of shocks: an energy shock, a massive AI infrastructure buildout and significant changes in trade policy. GDP grew at a 2.4% pace in the first half of the year, and he expects near-term growth to stay roughly at that rate, with AI-related investment the main support. The unemployment rate ticked down to 4.1% in August, a level he views as near maximum employment, and the ratio of job vacancies to unemployed workers has moved back above one.

On prices, he said the main driver of the recent pickup in headline inflation is energy, including gasoline and diesel, and that he remains concerned higher energy prices could lead to a persistent rise in inflation more broadly. Core services excluding housing have been edging up despite slowing wage growth, and AI-related demand is pushing up core goods prices. Short-term survey measures of inflation expectations are elevated; most longer-term measures remain consistent with 2%.

Jefferson supported last month's decision to raise the federal funds target range by a quarter point to 3¾ to 4%, calling it an important step to keep longer-term expectations anchored. On what comes next he committed to nothing: future adjustments should depend on the data, the outlook and the balance of risks. He noted that since the September meeting yields across the term structure have increased further, a sign investors are reassessing the outlook, and said he and his colleagues will need to come to their own judgment, "which may take more time".

Why it matters

The vice chair backed the hike without signalling another. Pointing to the further rise in yields since September, and saying judgment may take more time, reads as a reason to wait and see how much tightening markets have already done.