Fed’s Paulson: more concerned about labor market than inflation
Federal Reserve Bank of Philadelphia President Anna Paulson expressed greater concern about labor market weakness than inflation risks, in a speech delivered Friday at a Delaware State Chamber of Commerce event.
"On net, I am still a little more concerned about labor market weakness than about upside risks to inflation," Paulson said in Wilmington.
Paulson described the labor market as "bending, but not breaking" and noted that recent monetary policy adjustments were preventative measures against further deterioration.
"By lowering rates 75 basis points over the last three meetings, we’ve taken out some insurance against further labor market deterioration," she stated.
The Fed official indicated that current monetary policy is "somewhat restrictive" with the federal funds rate at 3.5% to 3.75%. She believes this level, combined with previous policy tightening, should help bring inflation back to the Fed’s 2% target.
On Wednesday, the Federal Open Market Committee (FOMC) cut its interest rate target by a quarter percentage point to between 3.5% and 3.75%, balancing job market risks against elevated inflation. The Fed provided limited guidance about potential January rate actions, partly due to data gaps from the recent government shutdown.
Paulson, who will become a voting FOMC member in January, expressed optimism that inflation pressures would ease in 2026. She attributed most of 2025’s high inflation to trade tariffs, which she expects to have diminishing effects.
"That’s partly because I see a decent chance that inflation will come down as we go through next year," she said, citing the waning impact of tariffs.
The Philadelphia Fed president noted that by the January FOMC meeting, policymakers will have "a lot more information" to clarify the outlook for both inflation and employment.
Source: Investing.com
