Fed lifts policy rate to 3.75-4% as AI fuels growth

The Federal Open Market Committee voted in September to raise the target range for the federal funds rate by a 1/4 percentage point to 3-3/4 to 4 percent, a move the Fed says is needed to anchor inflation expectations and achieve its 2 percent price-stability goal.

Vice Chair Jefferson noted that real GDP grew at a 2.4 percent pace in the first half of the year, driven largely by AI-related business investment, while consumer spending remained resilient despite higher energy and tariff-affected prices.

The labor market, he said, appears near maximum employment, with the unemployment rate ticking down to 4.1 percent in August and job vacancies per unemployed worker moving back above one.

Inflation, however, remains above target, with the 12-month change in the personal consumption expenditures price index at 3.4 percent in August and core services excluding housing edging up, a trend Jefferson attributes in part to volatile energy prices and the AI buildout.

Jefferson emphasized that the Fed will continue to assess data trends and risk balances before deciding on further policy adjustments, noting that the economy is in a six-and-a-half-year-long expansion but that inflation has been too high for more than five years.