The Federal Reserve Board published a speech by Vice Chair Philip N. Jefferson outlining his early-2026 economic outlook, the implications for the future path of the federal funds rate, and recent changes to monetary policy implementation. He described the economy as positioned to keep growing while inflation moves back toward the Federal Open Market Committee’s (FOMC) 2 percent objective, and said last year’s rate cuts have brought policy into a range he views as consistent with neutral while leaving scope for further data-dependent adjustments. Jefferson pointed to third-quarter 2025 gross domestic product growth of 4.3 percent and a near-term growth pace of about 2 percent excluding shutdown effects, alongside a labor market that has softened but is not deteriorating rapidly, with unemployment at 4.4 percent at end-2025. On inflation, he cited December consumer price index (CPI) inflation of 2.7 percent year on year and core CPI inflation of 2.6 percent, noting that declining services inflation has been offset by firmer core goods prices, with core goods inflation rising to 1.4 percent over the 12 months ending December 2025, partly reflecting tariffs. On implementation, he said the FOMC halted balance sheet runoff in December 2025 after reducing securities holdings by about USD 2.2 trillion, judged reserves to have reached an ample level, and initiated reserve management purchases to maintain ample reserves and short-term rate control, distinguishing these short-term Treasury purchases from quantitative easing. He also highlighted that the FOMC eliminated the aggregate limit on standing repo operations in December 2025, and pointed to increased usage around year-end as repo rate pressures rose. He said the pace of reserve management purchases will be front-loaded for the first few months to ease near-term money market pressures and is then expected to decline, with sizing dependent on seasonal liability swings and market conditions. Jefferson noted the next policy meeting was scheduled in less than two weeks and indicated any additional rate adjustments would depend on incoming data, the evolving outlook, and the balance of risks.
Federal Reserve Board 2026-01-16
Federal Reserve Vice Chair Jefferson sets out 2026 outlook and explains reserve management purchases and expanded standing repo operations
Federal Reserve Board Vice Chair Philip N. Jefferson outlined his early-2026 economic outlook, highlighting a growing economy with inflation moving toward the FOMC's 2 percent target and a neutral federal funds rate range. He noted the FOMC's December 2025 halt of balance sheet runoff, initiation of reserve management purchases, and elimination of the aggregate limit on standing repo operations, with future rate adjustments contingent on data and market conditions.