Fed's Jefferson: Rates likely to fall over medium term

By Howard Schneider

(Reuters) - The Federal Reserve can continue cutting interest rates at least "over the medium term," Fed Vice Chair Philip Jefferson said on Tuesday, reiterating the U.S. central bank's message that policymakers needn't rush their next rate cut.

"Overall, the U.S. economy is starting the year in a good position. I expect inflation’s slow descent to continue, and I anticipate that economic growth and labor market conditions will remain solid," Jefferson said in remarks prepared for delivery at Lafayette College in Easton, Pennsylvania.

In that situation, "over the medium term, I continue to see a gradual reduction in the level of monetary policy restraint placed on the economy as we move toward a more neutral stance as the most likely outcome," Jefferson said. "That said, I do not think we need to be in a hurry to change our stance."

"As long as the economy and labor market remain strong, I see it as appropriate...to be cautious in making further adjustments," he said.

The outlook for this year is good, he said, but "we face additional uncertainties about the exact shape of government policies, as well as their economic implications."

The Fed at its policy meeting last week held its benchmark interest rate steady in the 4.25% to 4.5% range. Inflation remains more than half a percentage point above the Fed's 2% target and has shown little improvement over the last half year.

While Fed policymakers are confident price pressures continue to ease in the economy, they are also watching closely to understand the net impact of the Trump administration's tariff, immigration, tax and other policies.

Investors currently expect the Fed to cut the policy rate by a quarter of a percentage point in June and again in December.

(Reporting by Howard Schneider; Editing by Leslie Adler)

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