Labor Market or Inflation? This Is What's Confusing Paulson!
Philadelphia Federal Reserve President Anna Paulson said she is approaching the December policy meeting with extreme caution. She believes the central bank must balance the labor market slowdown with the persistent risk of inflation. She believes the interest rate cuts made so far are appropriate, but any additional cuts would require a stronger rationale.
Paulson said the risk of rising inflation remains, while on the other hand, the risk of weakening employment is also increasing. Therefore, she believes monetary policy "must walk a very fine line." She admitted that, for now, she is slightly more concerned about labor market conditions than inflation. Paulson also added that the Fed will still receive a lot of important data before the December meeting, so there is still room for assessment.
She assessed that the US economy as a whole is "still doing well," but there is a growing divergence between upper-income groups and low- to middle-income households. The lower-income group is considered to be facing more pressure. Paulson called the September labor market report overall quite "encouraging," while the impact of import tariffs was smaller than feared, and existing demand continued to help contain inflation.
Paulson also highlighted that current economic growth is largely driven by high-income groups and is highly sensitive to stock market movements. This makes future growth prospects more vulnerable if equity valuations correct. In financial markets, the US Dollar Index (DXY) moved slightly lower and was last trading around 100.15, down 0.06% on the day. (asd)
Source: Bloomberg
