Philip N Jefferson: Economic outlook

Speech by Mr Philip N Jefferson, Vice Chair of the Board of Governors of the Federal Reserve System, at the Annual Conference of Second District Directors and Advisors, Federal Reserve Bank of New York, New York City, 14 May 2025.

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

Thank you, President Williams. It is wonderful to be back in New York, and it is an honor to speak to you, the directors and advisers to the Second District. You all play an extremely important role for the Federal Reserve Bank of New York and, indeed, for the entirety of the Federal Reserve System. You, and your peers around the country, inform President Williams and the other Bank presidents about how you see the economy unfolding in your communities and in your industries. The presidents, in turn, share that vital information with all the members of the Federal Open Market Committee (FOMC) so that we can make the best monetary policy decisions to benefit all Americans. Thank you for the important contributions.

In the spirit of sharing information, I thought it would be helpful to share with you my economic outlook. First, I will discuss how I see recent economic activity. Next, I will talk about developments pertaining to both sides of our dual mandate, maximum employment and price stability. Finally, I will offer my current view of monetary policy.

Economic Activity

While the economy entered a period of heightened uncertainty this year, the underlying data through the first quarter showed resilience. As you can see in figure 1, gross domestic product (GDP) contracted slightly by 0.3 percent in the first quarter, on an annualized basis, after expanding at a 2.4 percent rate in the fourth quarter of 2024. That change, however, overstates the deceleration in activity. A surge in imports apparently ahead of anticipated changes to trade policy did not seem to be reflected fully in inventory or spending data. That misalignment complicated the interpretation of measured GDP data. Private domestic final purchases, which exclude government spending, inventory investment, and net exports, usually gives a better read than GDP on the underlying momentum in the economy. That came in at a 3 percent rate in the first quarter, consistent with readings from last year.