The September rate cut was “timely” by Reuters

(Reuters) – The Federal Reserve’s 50 basis point interest rate cut last month was “timely” and neither reactive nor proactive, Fed Vice Chairman Philip Jefferson said on Tuesday.

“It was timely and consistent” with the Fed’s two mandates of achieving 2 percent inflation and full employment, Jefferson said at Davidson College in North Carolina.

The Fed’s success in meeting the first mandate by reducing inflation, he said, allowed the US central bank “to pay more attention to the other part of the mandate.”

Jefferson voted in September with most of his colleagues to cut the Fed’s policy rate, marking a turning point in what had been a two-year battle against inflation that has pushed US borrowing costs to their highest levels in recent years. decades.

“Our goal over the past two years has been to reduce inflation without causing an undue or irregular increase in the unemployment rate,” Jefferson said. “And that’s why we kept the policy rate very high for a long time, because we wanted to reduce inflation and the labor market worked very well.”

Unemployment, rather than rising as the Fed raised rates as it had in previous struggles with inflation, has held steady below 4% for most of that time.

“The performance of the labor market has given us the room, if you will, to keep policy … in restrictive territory for an extended period of time,” Jefferson said. But the upward drift in unemployment – now at 4.1% – and inflation falling closer to the Fed’s 2% target made it time to “recalibrate” policy, he said.