Federal Reserve Bank of Philadelphia President Anna Paulson stated on Thursday that additional interest rate increases may be necessary to return inflation to the 2% target, pointing to persistent underlying price pressures across the economy.
Underlying price pressures
In remarks prepared for delivery at the regional bank, Paulson noted that bringing inflation back to 2% remains a top priority, adding that she will support the policy trajectory required to achieve that goal while assessing risks to employment. Inflation reached 3.4% in August.
Underlying inflation is fluctuating in a range of around 2.5% to 3%, she said, adding that the best she could say about core price trends this year is that they have not worsened. Core inflation showed little progress.
Economic resilience and risks
Paulson said the balance of risks shifted as economic activity proved resilient despite shocks stemming from tariffs and conflict in the Middle East between Israel and Iran. Tariffs created economic shocks.
Recent consumption growth remained strong while business investment received support from the expansion of artificial intelligence, according to Paulson, who also characterized the labor market as stable. She noted that moderate additional monetary tightening may become necessary if economic conditions evolve along her baseline expectations.
The remarks follow the Federal Reserve’s decision in the previous week to raise its benchmark interest rate by 0.25 percentage points to a target range of 3.75% to 4.00%, after which projections showed officials anticipated one further increase before year-end. Rates rose last week.
Related: Fed lifts rate by 25 bps as BOJ hikes to 1.25% · Deutsche Bank warns markets misprice global rate hikes
Source: Federal Reserve | Data: FRED — St. Louis Fed · European Central Bank
