Jefferson, Economic Outlook and the Labor Market

Fed Vice Chair Jefferson said the U.S. economy is still growing at about trend, with GDP up roughly 2% last year and expected to expand at a similar or slightly faster pace in 2026, supported by resilient consumer spending, business investment and AI-related capex. He described the labor market as roughly in balance but vulnerable to downside shocks, while stressing that inflation remains above the Fed’s 2% target and that returning inflation to target remains the priority. On the inflation backdrop, Jefferson flagged stalled disinflation over the past year, with tariffs and renewed energy-price pressure complicating the outlook. He said PCE inflation is estimated at 2.8% y/y in February and core PCE at 3.0% y/y, with little progress in core inflation over the past year. He also noted that the recent jump in gasoline prices and elevated Middle East-related energy costs could feed into upcoming inflation prints. For metals, the speech reads modestly hawkish: a still-resilient economy, sticky core inflation and explicit concern about renewed energy-driven price pressures reduce the urgency for easing. That combination is typically a headwind for gold on the margin via front-end rate expectations and the dollar, though geopolitical and inflation risks remain supportive enough to limit downside. Near-term market focus stays on incoming PCE/inflation data and any shift in Fed reaction function if tariffs or energy keep core inflation elevated.