Federal Reserve's Jefferson: Inflation Risks Still Biased to the Upside

Federal Reserve Vice Chairman Philip Jefferson spoke at a Tokyo conference hosted by the Bank of Japan on Thursday, stating that he expects inflation to ease later this year, but also warning that risks are still skewed to the upside.

Jefferson noted that he is closely watching for signs that the war in Iran is raising energy costs and dragging on consumer spending, and said the labor market still shows weak signals. He reiterated that the Federal Reserve's current policy stance is fully flexible enough to respond to various economic changes.

On the interest rate outlook, Jefferson was cautious in his choice of words. He said, "I have not pre-judged the next meeting," and will make decisions based on incoming data, the evolution of the economic outlook, and the balance of risks. The Federal Reserve left the benchmark interest rate unchanged at a range of 3.5% to 3.75% last month.

It is worth noting that the interest rate meeting on June 16th and 17th will be the first meeting chaired by the new chairman, Kevin Warsh. In the analysis framework of Deutsche Bank earlier, Warsh is considered to view the current inflationary pressure as a temporary disturbance. The tone of Jefferson's speech is basically consistent with this judgment, but his clear warning about the upside risks also resonates with Deutsche Bank's judgment that the current policy interest rate is more than 100 basis points too low.