Inflation will be key to future interest rate decisions: US Fed official

US Federal Reserve Vice Chair Philip N Jefferson has stated that inflation will be the primary consideration when determining future interest rate decisions. Despite signs of stability in the American economy and labor market, price pressures remain elevated. Speaking at the University of California, San Diego Economic Roundtable, Jefferson emphasized that the trajectory of inflation provides the most important signal for determining the appropriate stance of monetary policy.

He believes that future policy adjustments should be based on carefully examining trends in data, evolving outlook, and the balance of risks. Inflation has remained well above the Federal Reserve's 2% target, with the annual personal consumption expenditures (PCE) inflation rate at 3.6% in September and core PCE inflation at 3.1%.

The Vice Chair expressed concern over the risk of higher energy prices leading to a persistent rise in inflation, as seen in sectors such as airfares and transportation, driven by strong demand for new technologies like memory chips. Inflation data for October continues to indicate price pressures remaining well above the Fed's target.

While labor market conditions have stabilized with an unemployment rate of 4.1% in October, Jefferson expects it to remain around this level in the near term. The US economy has shown momentum this year, with GDP expanding at an annualized rate of 3.4% in the third quarter. The Fed is on track to keep interest rates unchanged at their October meeting, as economic activity and labor market conditions have remained solid.

However, inflation readings still indicate persistent price pressures, suggesting the Fed's future policy decisions will continue to be closely tied to inflation trends.