Fed Vice Chair Jefferson explains September rate increase, cites inflation risks

On 2026-10-01, Vice Chair Jefferson told a Federal Reserve audience that real GDP grew at a 2.4 percent annual pace in the first half of 2026, business investment has been quite strong—primarily supported by AI-related spending—and consumer spending and retail sales accelerated somewhat in the first half. Jefferson said energy prices were driving the pickup in headline inflation described in the Oct. 1, 2026 speech, the 12-month change in the PCE price index was 3.4 percent in August 2026, and inflation has exceeded 2 percent for more than five years.

Jefferson noted hiring picked up in spring and summer 2026, layoffs have remained low, the unemployment rate ticked down to 4.1 percent in August 2026, and the ratio of job vacancies to unemployed workers moved back above 1 in 2026. He said short-term inflation expectations are elevated, yields across the term structure have risen since the September 2026 FOMC meeting, and he supported the FOMC decision in September to raise the federal funds target range to 3.75–4.00 percent.

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