Listen, there’s an interesting point from Federal Reserve Vice Chair Philip N. Jefferson’s speech yesterday that warrants attention. He basically said the U.S. economy remains relatively solid at the start of 2026, but some signals are beginning to change—particularly in the labor market.

First of all, economic growth is still strong. Q3 2025 GDP grew by 4.3% year-over-year, much faster than in the first half of the year. This was driven by solid consumer spending and some positive fluctuations in exports. But deeper down, concerns are starting to emerge in the employment sector. Job creation slowed significantly—November and December added only about 50,000 jobs per month, well below the 2024 average. The unemployment rate also rose to 4.4%, though it remains moderate.

Now, on inflation—this is the most interesting part. Jefferson emphasized that disinflation is indeed underway, but its pace is slowing. December 2025 CPI increased by 2.7% year-over-year, while core CPI was also 2.6%. Looking at the components, there’s a unique dynamic: inflation in services (especially rent and non-energy services) continues to decline, but this is offset by rising prices for core goods. The increase in these goods is mostly due to higher import tariffs. So, disinflation isn’t proceeding smoothly—there’s a tug-of-war between sectors that have returned to normal and new pressures from trade policies.

Here, Jefferson shows cautious optimism. He believes disinflation will return to a sustainable path toward the 2% target because tariff impacts are one-time (once tariffs increase at the price level, but they are not ongoing). Short-term inflation expectations have already fallen from their peaks last year, both in markets and surveys.

Regarding monetary policy, this is the most important point: the Federal Reserve has cut interest rates by 1.75 percentage points since mid-2024. Jefferson assesses that the federal funds rate is now at a neutral level—neither stimulating nor restraining the economy. He clearly signals that there’s no urgency to cut rates further at the upcoming FOMC meeting at the end of January. The decision will depend on upcoming data, evolving outlooks, and risk balance.

Also interesting is Jefferson’s discussion of Fed balance sheet operations. They just stopped reducing assets in December 2025—having shrunk by about $2.2 trillion. Now, bank reserve levels have fallen from abundant to adequate, which is beginning to put pressure on short-term interest rates. To maintain stability, the Fed has started reserve management purchases—this isn’t quantitative easing, but routine operations to ensure reserves stay at appropriate levels and that interest rate control remains effective.

Overall, Jefferson indicates that the Fed is in a critical transition phase. The economy is still growing, but the labor market is weakening. Disinflation is underway but faces new hurdles. Monetary policy is already at a neutral stance, and the Fed is prepared to adjust based on incoming data. This is a cautious but not panicked positioning—waiting to see whether the economy will experience a soft landing or face more serious challenges.