The Fed’s Paulson says monetary policy is still working to reduce inflation
Paulson expects inflation to moderate in 2026
The Fed could cut rates again in the new year
Philadelphia Federal Reserve Bank President Anna Paulson said on Saturday that another rate cut by the central bank could be a bit off while officials assess the economy’s performance after an active easing campaign last year.
“I see inflation easing, the labor market stabilizing, and growth coming in at around 2 percent this year,” Paulson said in a speech to be delivered before the 2026 annual meeting of the Allied Social Science Associations in Philadelphia. “If all this happens, then further modest adjustments to the funds rate later in the year would probably be appropriate,” the official said.
Paulson also said, “I see the current level of the funds rate as still a little restrictive,” adding that he is still working to reduce inflationary pressures.
Paulson will vote on the Federal Open Market Committee to set interest rates this year. Last year, the FOMC cut its interest rate target by three-quarters of a percentage point in three separate moves of 25 basis points, leaving the central bank’s target for interest rates between 3.5% and 3.75% at its December policy meeting.
Officials cut rates amid tricky balancing act. They sought to ensure that policy created enough headwinds to reduce inflation while also keeping rates low enough to help support a weakening labor market. As officials cut interest rates, they also faced significant pressure from President Donald Trump to cut more aggressively, while many Fed officials were unwilling to budge at all with inflation still well above the 2% target.
At the December meeting, Fed Chairman Jerome Powell gave little guidance on the timing of future rate cuts, although the Fed’s forecasts for this year show some further easing.
In her remarks, Paulson said she was “cautiously optimistic about inflation” and a desire for “greater clarity about what’s pushing growth up and employment down.”
“I see a decent chance we’ll end the year with inflation close to 2% on a running rate basis” as tariff-related price adjustments are completed, the official said.
As for hiring, “while the labor market is clearly bending, it’s not breaking,” Paulson said. She added: “I see the broad slowdown in the labor market stemming from both supply and demand factors,” and the hiring situation deserves increased attention throughout the year. (Reporting by Michael S. Derby; Editing by Chris Reese)
