Fed's Jefferson Flags Rate Hike Risk if Inflation Stays Sticky

Federal Reserve Vice Chair Philip Jefferson said Thursday the central bank could raise rates again if inflation does not start cooling soon, while describing current policy as appropriate for the moment.

Speaking at the Stanford Institute for Economic Policy Research, Jefferson said the Fed's stance "should continue to support the labor market while allowing inflation to resume its decline toward our 2% target." But he added that "in a scenario where actual inflation does not start to cool down soon, I believe that it could be appropriate to reconsider our current policy stance."

Jefferson focused heavily on upside risks. He warned that "the quick succession of shocks raises the risk that inflation becomes entrenched and inflation expectations become unanchored," pointing to tariffs, Middle East tensions and higher energy prices. The key question, he said, is whether the recent rise in oil prices feeds into longer-term inflation expectations and results in a persistent increase in inflation.

He also flagged artificial intelligence as both a potential source of productivity gains and a near-term inflation risk. AI could eventually boost supply and ease price pressures, Jefferson said, but "optimism about AI may boost investment and consumption today, even before these productivity gains fully materialize."

The remarks suggest the Fed is prepared to tighten further if inflation fails to resume its path toward 2%, even as it holds rates steady for now.