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The No. 2 official at the Federal Reserve said Thursday that he thinks the central bank can begin to cut interest rates in 2024.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back our policy restraint later this year,” said Fed Vice Chair Philip Jefferson, in a speech to the Peterson Institute for International Economics, on Thursday.

The Fed penciled in three rate cuts in the latest forecast released in December. An updated forecast will come next month.

After the surprising strong economy last year, Jefferson said he expects slower growth in spending and output in 2024 as household balance sheets have started to weaken.

If consumer spending doesn’t weaken, that could cause progress on inflation to stall, Jefferson said.

The Fed vice chair said he was cautiously optimistic about the Fed’s progress on inflation. He said that service inflation will cool as the labor market cools.

Jefferson provided estimates of the January personal consumption expenditure index, which won’t be released until Feb. 29. Economists can give fairly close estimates of PCE inflation once the consumer-price index and producer-price indexes are released.

In January, Jefferson said the headline PCE will moderate to 2.4% over the past 12 months, down from 2.6% in December. Core PCE inflation, excluding food and energy will tick down to 2.8% from 2.9%.

The CPI data, released earlier this month, was disappointing, Jefferson said, and highlights that the process of bringing inflation down “is likely to be bumpy.”

Jefferson held out the hope of a soft landing for the economy.

The fact that inflation has come down while the jobless rate remained low “suggests that there is a path to restoring price stability without the kind of substantial increase in unemployment that has often accompanied significant tightening cycles,” he said.

But he said the Fed also had to keep an eye out for some kind of unanticipated shock.

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