Key Insight: Federal Reserve Vice Chair Philip Jefferson said immigration and tariff policies have clouded his economic outlook and placed pressure on the central bank's dual mandate. However, because tariffs have had a smaller-than-expected impact on inflation, he said he expects disinflation to resume after this year.Expert Quote: "I view the uncertainty around my baseline outlook as especially high, mainly due to the new policies being introduced by the current U.S. administration and their effects on employment and inflation," Fed Vice Chair Jefferson said.What's at stake: Attention of Fed members seems to be turning more to supporting the central bank's employment mandate, potentially spelling more interest rate cuts at the next FOMC meeting in late October.

Federal Reserve Vice Chair Philip Jefferson said Tuesday that policies introduced by the Trump administration — policies that affect both sides of the central bank's dual mandate — are contributing to a cloudy economic outlook.

Speaking at the International Monetary Policy Conference hosted by the Bank of Finland, Jefferson described the uncertainty surrounding his baseline forecast as "especially high," though he pointed to emerging signs that could lead to more clarity in the near future.

"I view the uncertainty around my baseline outlook as especially high, mainly due to the new policies being introduced by the current U.S. administration and their effects on employment and inflation," Jefferson said. "As the changes in these policies are finalized and we have more time to judge how they are affecting the economy, I expect some of the broader uncertainty around the U.S. economy to diminish."

Jefferson highlighted immigration and tariff policies as key contributors to shifting risks in the job market and inflation outlook.

"I see the risks to employment as tilted to the downside and risks to inflation to the upside," he said. "It follows that both sides of our mandate are under pressure."

On the labor market, Jefferson pointed to a "notable slowing" in both labor supply and demand, partly due to a sharp decline in net immigration, which he called "an important contributor to workforce growth."

The economy added an average of just 29,000 jobs over the past three months, the slowest since the U.S. economy emerged from the COVID-19 pandemic. Jefferson said that the employment rate was 4.3% in August, a modestly low rate, but one that could "edge a bit higher this year before moving back down next year."

He added that the labor market, if left unsupported, could face further stress, justifying the Federal Open Market Committee's decision to cut rates by 25 basis points at its most recent meeting.

"This change moved our policy rate closer to a more neutral stance while maintaining a balanced approach to promoting our dual-mandate objectives," he said.

While the September vote to cut rates was unanimous, there was some division over the size of the move. Out of the 12 committee members, newly confirmed Fed Governor Stephen Miran stood out as the only participant who favored a deeper cut, favoring a 50 basis point cut. The FOMC also released its updated economic projections, with nine of 12 members expecting two additional rate cuts before the end of the year.

In his speech Tuesday, Jefferson acknowledged that while inflation has slowed, it remains about the Fed's 2% target. He noted that tariffs are starting to show up in some goods prices, although the overall impact has been smaller than previously anticipated.

"Several factors — including the final tariff rates, the extent of pass-through to consumer prices, the effects on supply chains, overall economic conditions, and what happens to longer-run inflation expectations — will influence the scope and persistence of the related rise in inflation," the Fed vice chair said.

He noted both short-term and long-term inflation expectations have shown signs of moderating, suggesting that "the American people understand [the Fed's] commitment to returning to our 2% target."

"I expect the disinflation process to resume after this year and inflation to return to the 2% target in the coming years," Jefferson said.