New Philadelphia Fed President Anna Paulson used her debut speech to call for a balanced approach to monetary policy as the economy navigates rising labor market risks and uncertain inflation dynamics.

She said policy should move toward a “more neutral stance,” stressing that the Fed must weigh both sides of its mandate. While she noted that the job market remains solid overall, she warned that conditions are “moving in the wrong direction” and that risks are “noticeably” increasing.

Paulson indicated she supports a measured pace of rate cuts consistent with the Fed’s latest projections, which outlined a quarter-point reduction last month and an additional 50 basis points of easing before the end of 2025, followed by further cuts in subsequent years.

On inflation, Paulson acknowledged that the recent tariff hikes could lift prices modestly, but said she does not expect those effects to persist. Still, she cautioned against rushing into deeper rate reductions given uncertainty over where the neutral rate truly lies.

Fed Governor Michael Barr said in a speech overnight that monetary policy remains “modestly restrictive”, and supported the decision to lower the federal funds rate by 25 bps at the September meeting. He said the move brought the stance “a bit closer toward neutral,” but emphasized that further adjustments should depend on new data and the evolving balance of risks.

Barr noted that since the September meeting, consumer spending has surprised to the upside, with data showing activity on a “notably stronger trajectory” than previously thought. That, he said, prompted most observers to revise up forecasts for GDP growth through the remainder of the year. Inflation, meanwhile, “moved up as expected,” with core PCE remaining well above the 2% target.

The Fed governor cautioned that “considerable uncertainty” continues to cloud the outlook. Slower payroll growth could be a “harbinger of worse to come,” he said, though it might also stabilize given the low unemployment rate and solid growth backdrop. On inflation, he warned that tariffs could have only a modest effect on prices—or, conversely, trigger renewed price pressures if expectations begin to rise.

Barr concluded that the FOMC should remain “cautious” about adjusting policy until more evidence clarifies the direction of the economy. “If we see inflation moving further away from our target, it may be necessary to keep policy at least modestly restrictive for longer,” he said. “If we see heightened risks in the labor market, we may need to move more quickly to ease policy.”

Full speech of Fed’s Barr here.

New York Fed President John Williams said in an interview with The New York Times that he still expects interest rates to be lower by year-end, but emphasized that the pace and extent of easing will depend on incoming data.

When asked about the possibility of two additional 25bps reductions, Williams said that would depend on whether inflation and employment evolve broadly in line with his outlook. He expects inflation to “move up a bit to around near 3%” and unemployment to edge slightly higher, in which case “policy should evolve the way we expect.”

But he warned against complacency, noting that it would be “very damaging to the economy and the Fed’s credibility” if inflation were allowed to rise well above 2% without action.

Williams downplayed fears that President Donald Trump’s tariffs were fueling persistent inflation. He estimated the measures have lifted the price level by only 0.25 to 0.5 percentage point, adding that “underlying inflation seems to be moving gradually lower toward 2%.” He also said there were no signs of second-round effects, suggesting tariffs are having limited spillovers on broader price dynamics.

At the same time, Williams pointed to rising downside risks to employment, which he said were offsetting some of the upside risk to inflation.