Well, guess who’s going to be furious over this.

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Vice Chare on the Economic Outlook

Please consider a speech on the Economic Outlook and Monetary Policy by Fed Vice Chair Philip N. Jefferson.

Economic Outlook
In shaping my economic outlook, I consider a wide variety of government, administrative, and private-sector data, including data collected by the Kansas City Fed and fellow Reserve Banks across the country.

Economic Activity
Before the government shutdown, available data indicated that the U.S. economy was on a trajectory of moderate growth this year. The shutdown has likely curtailed economic activity this quarter, reflecting furloughed federal workers and the suspension of government purchases of goods and services, including payments to contractors. There may also have been spillover effects to the private sector stemming from delays in federal payments, approvals, and other government activity. I see those effects as largely temporary and likely to reverse in the coming months. Thinking more broadly, I see the balance of risks in the economy as having shifted in recent months with increased downside risks to employment compared to the upside risks to inflation, which have likely declined somewhat recently.

Labor market
In the labor market, information available in recent weeks appears to be consistent with a gradual cooling in both labor demand and labor supply. For instance, unemployment insurance claims received from states have largely moved sideways in recent weeks. Anecdotal reports about the state of the labor market have been mixed, with some firms announcing a slower pace of hiring or cutbacks and others indicating they are ready to move forward with previously delayed hiring and investment.

I expect that the unemployment rate is likely to inch up slightly by the end of the year from the relatively low 4.3 percent rate recorded in August. While still solid, I continue to view the risk to my employment forecast as skewed to the downside.   

Inflation
The latest available readings show that inflation is running at a rate similar to that of a year ago, a bit below 3 percent, indicating that progress toward our 2 percent target has stalled. This lack of progress appears to be due to tariff effects, with signs that inflation excluding the effects of tariffs may be continuing to make progress toward 2 percent. Some firms have indicated that they expect pass-through of pricing pressure from tariffs to pick up in the fourth quarter as the inventory of non-tariffed merchandise is depleted.

A reasonable base case is that tariffs result in a one-time shift in the price level, not an ongoing inflation problem. That view is reinforced by inflation expectations readings. Most measures of near-term inflation expectations have retraced their spring rise, and market-based long-term inflation expectations continue to be well anchored. Several factors will influence the size and persistence of the rise in inflation. Those include the final tariff rates that are implemented, the extent and timing of pass-through to consumer prices, the reaction of supply chains and domestic manufacturing, and overall economic conditions. I will continue to monitor these factors closely. I remain firmly committed to returning inflation to the Fed’s 2 percent target.

Monetary Policy
Given that outlook, I supported last month’s decision to reduce our policy rate by 1/4 percentage point. That step was appropriate because I see the balance of risks as having shifted in recent months as downside risks to employment have increased. The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy. The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.

Starting in December, we intend to hold the size of our balance sheet steady for a time as reserve balances continue to decline passively even as other non-reserve liabilities, such as currency, rise. We will continue to allow agency securities to run off our balance sheet and will reinvest these proceeds in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. Over the coming years, this reinvestment strategy will help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities.

I will also note that, heading into our next meeting, it remains unclear how much official data we will see before then. With respect to the path of the policy rate going forward, I will continue to determine policy based on the incoming data, the evolving outlook, and the balance of risks. I always take a meeting-by-meeting approach. This is an especially prudent approach at this time.

Thank you again to the Kansas City Fed for hosting me today. I look forward to our discussion.

Discussion of Vice Chair Comments

Those are condensed excerpts. Click on the above link if you wish to read everything.

I agree on inflation but strongly disagree on the labor markets. Indications are things are about to get much worse.

Unemployment claims may be “moving sideways” but continued claims data is a mess.

Continued Claims Mess

Continued claims only reflect people eligible to make claims.

Once someone has exhausted all of their benefits, they are no longer eligible to make a claim. Such persons are unemployed but not recorded in claims.

A much better representation of continued claims required adding everyone who has exhausted benefits but is still unemployed.

Unemployment Level 15+ Weeks and 27+ Weeks

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Monthly Average Unemployment Level 15+ and 27+ Weeks

That chart is only through August (latest available monthly data).

Does that look gradual?

But we need to add claims to that picture.

Continued Claims and 27+ Weeks Unemployed

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Monthly Average Continued Claims + Unemployment Level 27 Weeks or More

I would like to ask the Fed Vice Chair if that blue line meets his definition of gradual.

We need to add 27+ week unemployment to continued claims because at 27 weeks unemployment benefits expire in nearly every state.

In practice, the chart is much worse. In some states benefits expire much sooner than 27 weeks.

Maximum Weeks of Unemployment Insurance

Chart courtesy of Center on Budget and Policy Priorities

12 states have expiring benefits at 21 weeks or less. In Florida and Kentucky benefits expire at a mere 12 weeks. In 5 other states, benefits expire at 16 weeks or less.

And job hopping also reduces benefits because to get the maximum number of weeks, a person has to stay on a job long enough.

So let me ask again, mentally factoring in job hopping and states with expiring benefits under 27 weeks, does the claims picture look gradual?

Initial claims may still be gradual (or not due to lack of compiled data), but the rise in adjusted continued claims is anything but gradual.

And history shows that an any slowdown, once someone hits 15+ weeks unemployment, they eventually get to 27+ weeks unemployed.

If we add the number of people at 15+ week unemployed to continued claims we get 4.92 million.

This number is growing with a cumulative impact on the economy. And it shows up in the polls.

Consumer Sentiment Drops Again, Current Conditions Hit New Record Low

On November 10, 2025, I noted Consumer Sentiment Drops Again, Current Conditions Hit New Record Low

What’s the matter with these people? Trump says the economy is humming.

Trump Adopts Chicago Cubs’ Perpetual Message, “Wait Till Next Year”

On October 5, I noted Trump Adopts Chicago Cubs’ Perpetual Message, “Wait Till Next Year”

“One Big Beautiful Bill” did not resonate. Trump opts for “Wait Till 2026”.

Laffer, a free trade advocate understands he cannot say anything bad about tariffs or Trump will personally attack him.

Everyone in the administration understands the setup.

But “Wait Till 2026” is a fundamental mistake. When 2026 is bad, the message will have to change.

Trump in the Hot Seat and Biden-Like Denials

Please recall my November 1, 2025 Hoot of the Day: Trump Admits Beef Prices Are High Because of His Tariffs

Trump argues with cattlemen over the price of beef. Trump to Quadruple Argentine Beef Imports While US Ranchers Fume.

Facing anger from farmers, Trump amusingly and quickly resorted the Democrat standard playbook: Blame Price Gouging.

Trump Sounds Like Biden

To dismiss the inflation idea, my Hoot of the Day on November 8 was Trump Sounds Like Biden and Kamala Harris on Price Gouging

Republicans should be seriously embarrassed.

What’s the Fed to Do?

The Fed, if the Vice Chair and Jerome Powell are any indication, has seriously underestimated the severity of the labor market situation.

If Trump has a case on the Fed, it is not inflation, it’s the labor market.

But Trump cannot admit the labor market is bad and his own tariff policy exacerbated the problem, can he?

So, he spouts nonsense on inflation that people believe as much as they believed Biden (Hint: Not at all).

Meanwhile the Fed is stuck. The Fed understands neither inflation nor the labor market.

Expect Dissents

At the next FOMC meeting expect 3 dissents no matter what the Fed does.

If the Fed pauses, three doves will howl. If the Fed cuts, three hawks will howl (perhaps some silently). So, expect dissents no matter what the Fed does.

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