The Zhitong Finance App learned that Philadelphia Federal Reserve Chairman Anna Paulson (Anna Paulson), who has the right to vote in the Federal Open Market Committee (FOMC) in 2026, said on Tuesday that she is still open to future interest rate paths, and future policy adjustments will mainly depend on core inflation trends. If potential inflation remains high, the Federal Reserve may need to further tighten monetary policy to ensure that inflation returns to the 2% target.
Paulson said in a recently published article that there are currently two reasonable scenarios to explain the impact of current monetary policy on inflation, and economic data released in the future will help the Federal Reserve determine what kind of situation it is in and decide whether policy adjustments are needed.
She pointed out that the first scenario is that if future inflation data continues to improve and long-term market inflation expectations remain stable, it means that the current interest rate policy is still “mildly restrictive” (mildly restrictive), which is enough to push inflation back to the Fed's 2% target within an acceptable period of time.
However, at the same time, she pointed out that potential inflation has only “declined slightly” in the past year, which may also mean that current interest rates are “still not sufficiently restrictive.”
Paulson said, “If potential inflation remains stubbornly high, then the delay in seeing further improvements over time will in itself indicate the need to implement a more restrictive monetary policy.”
The Federal Reserve kept the federal funds rate target range unchanged at 3.50%-3.75% for the fifth time in a row last week. Three officials voted to raise interest rates by 25 basis points, believing that early and moderate policy tightening would help reduce the risk of having to adopt more aggressive interest rate hikes in the future.
Paulson pointed out that last week's support for keeping interest rates unchanged “was not a difficult decision” for her. In an interview, she said that current evidence still shows that monetary policy is “moderately restrictive,” but we still need to see potential inflation continue to improve in the future.
“If we don't see this kind of progress, we must remain open to recalibrating monetary policy,” she said. Our goal is still to get inflation back to 2%.”
Regarding the recently released economic data, Paulson believes that improvements in a series of inflation indicators are encouraging, but they are still not enough to change policy judgments.
According to the data, the inflation index favored by the Federal Reserve, the personal consumption expenditure (PCE) price index fell 0.1% month-on-month in June, and the increase in the core indicator after excluding food and energy was also lower than market expectations. At the same time, consumer spending adjusted for inflation increased 0.4% month-on-month, the fastest growth rate since July last year.
Paulson Cheng: “Some recent improvements in inflation data are a step in the right direction, but only one step.” She estimates that the current potential inflation level in the US is still between 2.4% and 2.8%.
She stressed that potential inflation has been higher than the target for a long time and is the indicator she is currently most concerned about when evaluating policies.
Paulson also said that the overall US labor market remains stable, but the escalation of the situation in the Middle East has increased economic uncertainty and boosted some inflationary pressure. Furthermore, the boom in artificial intelligence (AI) infrastructure construction has brought upward pressure on prices in some fields, but at the same time boosted economic growth.
Referring to a series of reform proposals recently proposed by Federal Reserve Chairman Kevin Warsh, including setting up several working groups to study policy communication, balance sheet management, and considering adjusting eight interest rate meetings a year to six interest rate meetings plus two economy-specific meetings, Paulson said he is open to this.
She said, “It's a good thing to re-examine the way we work. As with monetary policy, I am open to this and would like to learn more about the pros and cons of holding six or eight policy meetings each year, and the possible impact of different arrangements.”