MNI BRIEF: Fed's Jefferson Sees Slower Growth, Downside Risks

Weaker U.S. consumer demand will drag down growth this year with further downside risks from bank credit tightening as the effect of higher interest rates play out, Federal Reserve Governor Philip Jefferson said Thursday.

However, progress on getting inflation down has been slowing and remains a challenge, he added, saying he will be data dependent in determining the future course of policy. The FOMC is expected to debate pausing rate hikes at their June meeting.

"On the one hand, inflation is too high, and we have not yet made sufficient progress on reducing it. On the other hand, GDP has slowed considerably this year, and even though the effect has been muted in the labor market so far, demand clearly has begun to feel the effects of interest rates that are 5 percentage points higher than they were a little over a year ago," he said in remarks prepared for a National Association of Insurance Commissioners forum.

"History shows that monetary policy works with long and variable lags, and that a year is not a long enough period for demand to feel the full effect of higher interest rates. Another factor weighing on my thinking is the uncertainty about tighter lending standards that I mentioned earlier. I intend to consider all these factors in the coming weeks as I contemplate the appropriate stance of monetary policy going forward."