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Philadelphia Fed President links another rate hike to inflation stalling

Paulson said underlying inflation is the key focus, estimating it around 2.4% to 2.8%, and warned that lack of progress over time could signal more restrictive policy is needed.

Reported · Written up by our desk · Central Banks

Federal Reserve Bank of Philadelphia President Anna Paulson said the Fed could still raise rates again, but only if incoming data suggest inflation is not resuming its decline. In remarks on Tuesday, she pointed to recent improvement in some inflation readings, while cautioning that the progress is only one step.

Paulson reiterated support for the Fed’s decision last week to leave the federal funds target range unchanged at 3.50% to 3.75%, and she emphasized that future policy will remain data dependent. She also described her approach as keeping an open mind as she assesses the evidence and determines the appropriate path.

She said her outlook would shift if policy is appropriately calibrated and begin showing growing signs that inflation is coming down. Conversely, if underlying inflation stays elevated and time passes without progress, she said that itself would indicate more restrictive policy may be needed.

Paulson distinguished between temporary supply shocks and persistent underlying inflation. She argued that brief easing in Middle East tensions can make energy-related price spikes transitory, so they should not automatically steer monetary policy, and she estimated underlying inflation at 2.4% to 2.8%.

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