Philadelphia Fed President Anna Paulson signaled support for keeping interest rates steady while also validating market expectations that rates could remain elevated for much longer than previously anticipated.
Speaking on Tuesday, Paulson also welcomed the recent shift in market pricing away from aggressive rate-cut expectations. “The way the market has moved in reaction to economic news over the last few months largely aligns with my own thinking,” she said. While emphasizing that policy was currently “in a good place,” Paulson added it was “healthy” for investors to consider scenarios where rates remain unchanged for an extended period, “as well as scenarios where further tightening becomes necessary.”
Still, Paulson did not suggest the Fed was preparing to hike imminently, noting that longer-term inflation expectations remain relatively well anchored and growth continues near potential. Markets continue expecting the Fed to keep rates unchanged at the June meeting, though officials increasingly appear comfortable allowing investors to price a much more restrictive policy path than markets expected earlier this year.
