Paulson Leaves Door Open for Interest Rate Hikes
Philadelphia Federal Reserve President Anna Paulson stated that the path for US interest rates remains open. She intends to closely monitor underlying inflation trends to determine whether current policy is sufficiently restrictive or requires further adjustment.
According to Paulson, interest rates could already be exerting a slight drag on economic activity, provided inflation continues to moderate and price expectations remain stable. Under these conditions, inflation could return to the Fed's 2% target without additional rate hikes.
However, a slow decline in underlying inflation could also indicate that policy is not yet restrictive enough. Paulson estimates that underlying inflation remains in the 2.4%–2.8% range. If there is no progress, she believes the Fed must be prepared to tighten policy.
The Fed previously held interest rates steady for the fifth consecutive time. Paulson supported this decision, whereas three other officials favored a 25-basis-point hike, concerned that delaying action would necessitate more aggressive tightening later.
Recent data offered some relief, with the PCE price index falling 0.1% in June. However, Paulson emphasized that a single report is insufficient to confirm that inflation is truly under control. Conflicts in the Middle East and AI infrastructure development could also continue to exert upward pressure on prices.
Newsmaker Analysis: Paulson's remarks indicate that the Fed has not yet locked in a policy direction. Stubborn inflation could raise the likelihood of rate hikes—supporting the dollar and bond yields while weighing on gold and stocks. Conversely, weakening inflation and labor market data would alleviate tightening pressure and potentially bolster gold. (arl)
Source: Newsmaker.id
