(Reuters) – 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.
“It was timely and consistent” with the Fed’s twin mandates of achieving 2% inflation and maximum employment, Jefferson said at Davidson College in North Carolina.
The Fed’s success in fulfilling the first mandate by reducing inflation, he said, allowed the US central bank to “pay greater attention to the other side of the mandate.”
Jefferson voted in September with a majority of his colleagues to reduce the Federal Reserve’s policy rate, marking a turning point in what had been a two-year battle against inflation that drove U.S. borrowing costs to their lowest levels. highest levels in decades.
“Our goal over the past two years has been to reduce inflation without causing an undue or disorderly increase in the unemployment rate,” Jefferson said. “And that’s why we kept the policy rate at a very high level for a long period of time, because we wanted to reduce inflation and the labor market was doing very well.”
Unemployment, rather than rising when the Federal Reserve raised rates, as was the case in previous battles against inflation, had remained consistently below 4% for most of that time.
“The performance of the labor market gave us the leeway, so to speak, to keep the policy… in restrictive territory for a long period of time,” Jefferson said. But rising unemployment – now at 4.1% – and falling inflation closer to the Federal Reserve’s 2% target made it appropriate to “recalibrate” policy, he said.