The Fed has raised its benchmark interest rate five full percentage points over the past 14 months. Inflation by the Fed's preferred measure has eased from 7% last summer to 4.2%, and unemployment has fallen to 3.4%, the lowest since 1969.
"Is inflation still too high? Yes," Jefferson said in remarks prepared for delivery to a monetary policy conference at the Hoover Institution. "Has the current disinflation been uneven and slower than any of us would like? Yes. But my reading of this evidence is that we are 'doing what is necessary or expected' of us."
And that, he said, is the dictionary definition of being "on track."
Earlier in the day Jefferson was nominated by U.S. President Joe Biden to be the next Fed vice chair, a key role in shaping U.S. monetary policy. Jefferson, who joined the Fed last May, has voted for every rate hike since then, including this month's increase to a range of 5%-5.25%.
After that decision Fed Chair Jerome Powell signaled the Fed may pause further rate hikes as it assesses incoming data and the effect of recent bank sector stress on credit conditions.
Jefferson in his prepared remarks Friday did not signal any disagreement with that strategy.
He said he expects consumer spending, which was very strong last quarter, to slow and credit conditions to tighten. Though he feels the added credit shock from the string of regional bank failures since March will likely be mild, it is "too soon to tell" and the downside impact could be bigger than he anticipates.
Meanwhile, he said, "monetary policy affects the economy and inflation with long and varied lags, and the full effects of our rapid tightening are still likely ahead of us."
Jefferson's remarks Friday constituted a defense of the central bank's efforts to bring down inflation before an audience of some of the Fed's tougher critics, including Stanford University professor John Taylor, author of a hugely influential and eponymous monetary policy rule who says the Fed's policy rate should be even higher at 6%.
The conference's organizers, who include Taylor, titled last year's iteration "How monetary policy got behind the curve" and this year's version "How to get back on track."
"We are balancing the directives of the dual mandate given to us by the U.S. Congress," Jefferson said, a difficult task in the uncertain post-pandemic world of economic surprises, including inflation that's been more persistent than thought, and a labor market that has remained strong. "It is in this sense that I believe that we are well on track.'” (Reporting by Ann Saphir; editing by Diane Craft)
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