Philadelphia Federal Reserve president Anna Paulson said Tuesday that she supported the decision to hold interest rates steady last week and is keeping an open mind about next steps on setting rates, depending on where inflation moves. “The recent improvement in some inflation…
ta is welcome,” Paulson said in a speech titled “Keeping an Open Mind.” “It is a step in the right direction, but it is only one step … I am keeping an open mind about where policy goes from here,” she said. Paulson said she’s focused on gathering more information to better understand what’s happening with inflation
Assessing underlying inflation — what price growth would be without the temporary effects of tariffs and energy shocks — she estimates it’s running somewhere between 2.4% and 2.8%. Paulson underscored that inflation has been elevated for a long time, and that persistence is what she’s most focused on as she evaluates bringing it back to the Fed’s 2% goal. As the conflict in the Middle East has repeatedly subsided and then flared up again, old tariffs expired, new tariffs were put in place, and more artificial intelligence investments were announced, Paulson said the economy looks fairly the same and the job market is stable.
She sees two scenarios for interest rates and how the current range of 3.5% to 3.75% is impacting inflation. One possibility, she said, is that rates are mildly restrictive and will bring inflation to 2% in an acceptable time frame. Paulson pointed to pressures on consumers and businesses, noting anecdotal evidence that the chief executive of a large consumer goods manufacturer told her that, despite increased costs on multiple fronts, his firm is keeping prices fixed because shoppers are very price-sensitive.