Jefferson, Economic Outlook and the Labor Market

Home News & Events Speeches Speech PDF <div class="js-disabled text-center"> <span class='icon icon-alert icon--jsAlert'></span> <span><strong>Please enable JavaScript if it is disabled in your browser or access the information through the links provided below.</strong> </span> </div> April 07, 2026 Economic Outlook and the Labor Market Vice Chair Philip N. Jefferson At the College of Business Administration, University of Detroit Mercy, Detroit, Michigan Share Thank you for the warm welcome. It is an honor to speak here at the University of Detroit Mercy.1 I spent most of my career as an economics professor before joining the Board of Governors, so I feel right at home when I am back on a university campus. Slide 1 Slide 2 This evening, I would like to start by updating you on my economic outlook. And since I have the privilege of being here in Detroit, a city synonymous with hard work, I will particularly focus on my labor market outlook. Next, I will discuss the possible implications of the outlook for the path of monetary policy. And, finally, I offer some thoughts about economic developments in the Southeast Michigan region before answering some questions. For the U.S. as a whole, I see the economy as continuing to grow, led by resilient consumer spending and healthy business investment. The labor market is roughly in balance but susceptible to adverse shocks. Inflation remains above the Federal Reserve's 2 percent target. As a Federal Reserve policymaker, I am focused on achieving the dual-mandate goals given to us by Congress of maximum employment and stable prices. I currently see risks to both sides of that mandate. Economic Activity The latest data on economic activity are consistent with an economy that is growing about in line with estimates of its potential pace. For all of last year, gross domestic product expanded about 2 percent, as shown in figure 1. That was just a slight slowdown from the previous year. For this year, I see the economy expanding at a similar or slightly faster rate than last year, though the uncertainty around my outlook is high. Investment in high-tech capital, particularly purchases tied to the expansion of artificial intelligence infrastructure, should support growth. In addition, I have taken note of the high pace of new business formation and broad deregulation activity among federal agencies, which could also stimulate growth. Effects from these developments could enhance productivity growth, which in turn supports economic growth and living standards. That said, there are also significant headwinds to consider. It is difficult to say how long the conflict in the Middle East and related disruptions could last. Should elevated energy prices persist, they can weigh on consumer and business spending. This potential adds considerable uncertainty to the global economic outlook.2 Inflation The recent increase in energy prices also complicates my inflation forecast. The cost of many products rose sharply during the pandemic, and Americans still feel those higher prices when they shop and pay their bills. The recent jump in gasoline prices understandably adds to frustrations. I am highly attentive to the fact that inflation has remained above the Fed's 2 percent target for five years. Low and stable inflation, alongside maximum employment, is the best outcome for all Americans. That is why I am committed to returning inflation to our target. Inflation has eased from its pandemic-era peak, but progress has stalled over the past year mainly due to tariffs. In addition, I expect elevated energy prices will be reflected in upcoming inflation readings. The blue line in figure 2 shows the personal consumption expenditures (PCE) price index through January. Based on the latest available data we have, the PCE price index is estimated to have risen 2.8 percent for the 12 months ending in February. Core prices, which exclude the volatile food and energy categories and are represented by the dashed red line. Core prices are estimated to have risen 3.0 percent for the 12 months ending in February. There has been little progress in lowering core inflation over the past year. Figure 3 shows the components of core PCE inflation. We have seen a welcome decline in housing services inflation, shown by the dashed purple line. This decline, however, has been offset by an increase in core goods inflation, shown by the blue line. Core services inflation excluding housing, the dashed red line, has largely moved sideways over the past year. It has been my expectation that the disinflationary process would resume once higher tariffs are no longer pushing up consumer prices.3 In addition, the strong productivity growth and deregulation efforts, which I previously mentioned, may further help in bringing inflation down to our 2 percent target. The recent increase in energy prices, however, will apply some upward pressure on headline inflation, at least in the near term. The ongoing trade policy uncertainty and geopolitical tensions pose upside risk to my inflation forecast. The Labor Market Now, let me turn to the labor market. To set up this discussion, I will first review how the labor market performed in 2025. Then, I will discuss how I interpret the most recent data. For much of last year, the labor market exhibited a gradual cooling. Both the supply of workers and the demand for labor eased in 2025, with the pullback on the demand side more pronounced. On the supply side, labor force growth slowed, mostly driven by a sharp decline in net migration. On the demand side, firms were reluctant to hire in part because of elevated uncertainty around the economic outlook. The pace of job creation cooled in 2025 compared to the previous few years, and job growth became more concentrated in a handful of industries, such as health care and social assistance. The unemployment rate, shown in figure 4, crept up from 4.0 percent in January 2025 to 4.5 percent in November 2025. In more recent months, the labor market has shown signs of stabilization. The unemployment rate edged lower in March to 4.3 percent, similar to its level at the end of last summer. The unemployment rate is near a level many forecasters estimate as its natural rate, or the level of unemployment that persists when the economy is at full strength.4 Job growth has been uneven in recent months, as you can see reflected in the blue line in figure 5. Some temporary factors, including winter weather and a labor strike, played a role in that choppiness. In March, U.S. employers added 178,000 jobs to payrolls. The three-month moving average of job growth, the dashed red line, smooths some of the month-to-month volatility. Through the first quarter of the year, employers added an average of about 70,000 jobs to payrolls each month. That pace of growth is somewhat subdued. It may, however, be well within the breakeven range that is necessary to keep the unemployment rate steady given the slowdown in overall labor force growth.5 I see some other signs of stabilization in the labor market. Labor force participation among Americans aged 25 to 54, so-called prime-age participation rate shown in figure 6, has moved up since the middle of last year. The rate is solid and above its pre-pandemic level. Claims for unemployment insurance, a proxy for layoffs, have also remained low. The current labor market is often referred to as being in a "low-hire, low-fire" state. What does this label mean? One answer is that rather than seeing widespread layoffs as labor demand cooled, we observed companies becoming more cautious about bringing on new employees. In essence, firms tightened their belts by pressing pause on expanding their workforces, rather than by letting people go. One set of data I am monitoring in the labor market is job openings and how the level compares with the number of unemployed Americans seeking work. Stepping back, as you may recall, the level of job openings surged early in the pandemic recovery. Then, as you can see in the left panel of figure 7, since the middle of 2022, the level began to normalize. I note that in more recent months, the level of openings appears to have stopped declining. The level of openings relative to the unemployment level is shown in the right panel of figure 7. That ratio appears to be flattening in recent months, just under a level where there is one opening for each person searching for work. When this ratio flattens, it suggests a potential balancing of labor supply and demand. This development could indicate that we are moving towards a more stable job market, but I will be watching how this trend develops. While the labor market appears to be stabilizing, I remain cautious about that assessment. Job gains recorded in recent months were enough to keep the unemployment rate stable, but a sufficiently large negative economic shock could push job gains below that range, driving up the unemployment rate. If the current elevated level of uncertainty persists, there is a risk that firms' reluctance to hire could also persist and hold down job growth for longer. I will remain attentive to the pace of job growth going forward as I assess the extent of potential fragilities in the labor market. Still, overall, I see the labor market as roughly in balance, and my baseline forecast is for the unemployment rate to remain roughly steady this year. Monetary Policy As a monetary policymaker, I strive to set the policy that will best achieve our dual-mandate goals of maximum employment and price stability. In the current environment, I confront an outlook in which there is downside risk to the labor market and upside risk to inflation. While that is a potentially challenging situation, I am confident that our current policy stance is well-positioned to respond to a range of outcomes. Last month, I supported the Federal Open Market Committee's decision to hold the target range for the federal funds rate steady. As you can see in