Federal Reserve Vice Chair Philip Jefferson said Friday he was "cautiously optimistic" about the 2026 economic outlook, with growth expected to remain slightly above trend, the labor market stabilizing, and inflation resuming a decline to the U.S. central bank's 2% target.

Current Fed policy is "well positioned" to respond however the economy evolves, Jefferson said in comments prepared for delivery at a Brookings Institution event, language consistent with the Fed's anticipated pause in further interest rate cuts as officials await more job and inflation data.

"The current policy stance is well positioned to address the risks to both sides of our dual mandate," Jefferson said.

"I believe that the extent and timing of additional adjustments to our policy rate should be based on the incoming data, the evolving outlook, and the balance of risks."

The Fed held its policy interest rate steady in the 3.50%-3.75% range at a meeting last week, with further moves hinging on how the job market evolves in coming months, and whether inflation moves lower after a year of little progress.

The Fed's preferred measure of inflation is currently about a percentage point above the 2% target, and "progress on disinflation has stalled over the past year," Jefferson said.

But he added that he felt the labor market was roughly "in balance," with the unemployment rate still low at 4.4%, and slow job growth aligned with the current tepid expansion in the labor force due to tightened immigration policies.

"I see the overall labor market as roughly in balance, with a low-hiring, low-firing environment prevailing.

In this less dynamic labor market, the downside risks to employment remain, but my baseline is for the unemployment rate to hold approximately steady throughout this year," Jefferson said, another argument for holding off on further rate cuts.

He was speaking at an event focused on how changes to supply dynamics can affect inflation, a key topic at the Fed right now as potential productivity gains raise the possibility the economy could grow faster without generating more inflation.

Jefferson said it was too early to declare whether recent higher productivity will persist, adding that over the short run some of the forces that may raise productivity — such as stronger capital investment in artificial intelligence — could potentially feed inflation as money pours into data center construction.

"A more immediate increase in demand associated with AI-related activity could raise inflation temporarily, absent offsetting monetary policy actions," Jefferson said, a counter to the arguments made by some policymakers, including Fed chief nominee Kevin Warsh, that AI investment portends a productivity boom that will lower inflation and allow the central bank to cut interest rates.