Philip N Jefferson: How healthy are US households' balance sheets?

Speech by Mr Philip N Jefferson, Vice Chair of the Board of Governors of the Federal Reserve System, at the Martin H Crego Lecture in Economics, Vassar College, Poughkeepsie, New York, 19 February 2025.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Figures accompanying the speech

Thank you, Professor Ho for that kind introduction and for the opportunity to talk to the Vassar community. I am happy to be back on campus. As a teenager in Washington, D.C., I had the very good fortune that a high school counselor pushed me to apply to Vassar College. I was accepted, and I earned my bachelor's degree here. Attending Vassar opened a wider variety of opportunities to me than I would have otherwise had available. But I encountered one problem: Vassar did not offer any banking or business courses, which is what I wanted to study. So, I enrolled in an economics class, figuring it was the next best thing. I was hooked, and I have been studying economics ever since.

My time here as a student was transformative, and I was honored to have served on Vassar's board from 2002 to 2022. Vassar is a vibrant intellectual community.

To motivate the topic of today's speech, let me begin by sharing with you briefly my assessment of the current state of the U.S. economy. The performance of the U.S. economy has been quite strong overall. Last year, gross domestic product grew at a solid pace of 2.5 percent. I see the labor market as being in a solid position, with job creation steady and the unemployment rate at 4 percent in January. Inflation has come down a great deal over the past two and a half years but remains somewhat elevated relative to our 2 percent target. Based on recently released data, it is estimated that the 12-month change in the personal consumption expenditures price index was 2.4 percent in January. Progress toward our 2 percent objective has been slow in the past year. I expect the path of inflation to continue to be bumpy. While a cumulative cut in the policy rate by 100 basis points last year has brought the stance of monetary policy closer to a neutral setting, monetary policy continues to be restrictive. I believe that, with a strong economy and a solid labor market, we can take our time to assess the incoming data to make any further adjustments to our policy rate.