Federal Reserve Bank of Philadelphia President Anna Paulson made clear that another rate hike remains on the table, but only if incoming data show inflation is failing to resume its downward path. In remarks on Tuesday, Paulson welcomed recent progress, saying “the recent improvement in some inflation data is welcome,” but quickly cautioned that “it is only one step.” She reiterated her support for last week’s decision to leave the federal funds target range unchanged at 3.50-3.75%, while stressing that future policy will remain firmly data dependent.
Rather than offering guidance on the Fed’s next move, Paulson emphasized the conditional framework increasingly adopted under Chair Kevin Warsh. “I am committed to keeping an open mind as I assess the evidence and determine the appropriate path for policy,” she said. While noting that current policy is already restraining economic activity, she explained what would change her outlook: “If policy is appropriately calibrated, I would expect to see growing signs that inflation is coming down.” However, “if instead underlying inflation remains stubbornly elevated, the passage of time without progress would itself signal that more restrictive policy is needed.”
Paulson also distinguished between temporary supply shocks and persistent underlying inflation. She argued that the brief easing in Middle East tensions showed energy-related price spikes can prove transitory and therefore should not automatically drive monetary policy. Instead, her focus remains on underlying inflation, which she estimated at 2.4% to 2.8%, describing it as “what I am most focused on” because it has remained elevated for an extended period.
Key Takeaways
- Philadelphia Fed President Anna Paulson supported last week’s decision to keep rates unchanged at 3.50–3.75%, but stressed that one better inflation reading is not enough to declare progress secure.
- Her key condition for another hike is persistent underlying inflation without further improvement. As she put it, “the passage of time without progress would itself signal that more restrictive policy is needed.”
- Paulson estimates underlying inflation at around 2.4%–2.8% and said this is the area she is “most focused on,” rather than temporary swings in headline inflation.
- She argued that energy shocks linked to the Middle East can be temporary and should generally be looked through when setting policy.
- Her stance is cautiously hawkish: current policy may be sufficiently restrictive, but only if inflation continues to move lower.
- The remarks fit the post-Warsh communication framework, with officials emphasizing conditions for action rather than offering forward guidance on the next meeting.
