Federal Reserve Bank of Philadelphia President Anna Paulson indicated on Saturday that further interest rate reductions by the US central bank might not be imminent. Officials are currently assessing the economic landscape following a series of aggressive easing measures implemented last year.
Paulson's Cautious Outlook on Future Rate Moves
In prepared remarks for the 2026 Allied Social Science Associations Annual Meeting in Philadelphia, Paulson outlined her expectations. She anticipates inflation will moderate, the labour market will stabilise, and economic growth will hover around 2% for the year. Should this forecast materialise, she believes some modest further adjustments to the federal funds rate could be appropriate later in 2026.
"I view the current level of the funds rate as still a little restrictive," Paulson stated, emphasising that the existing policy stance continues to apply downward pressure on inflation. The official, who will hold a voting seat on the rate-setting Federal Open Market Committee (FOMC) this year, stressed the need for patience.
Recap of 2025's Tricky Balancing Act
The context for Paulson's comments stems from the Fed's actions in the previous year. In 2025, the FOMC executed three separate quarter-percentage-point cuts, reducing the benchmark interest rate target by a total of 75 basis points. This left the target range at 3.5% to 3.75% following the December policy meeting.
These cuts were executed amid a complex economic environment. The Fed aimed to maintain sufficiently tight policy to curb inflation, which remained stubbornly above its 2% target, while also providing enough support to a job market showing signs of softening. The decision-making was further complicated by external pressures, including calls from then-President Donald Trump for more aggressive easing, while several Fed officials themselves were hesitant to cut rates at all.
Focus on Inflation and Labour Market Dynamics
Paulson expressed "cautious optimism" regarding the inflation trajectory. She pointed to the completion of tariff-related price adjustments as a factor that could help. "I see a decent chance that we will end the year with inflation that is close to 2% on a run-rate basis," she remarked.
On the employment front, Paulson offered a nuanced view. "While the labour market is clearly bending, it is not breaking," she observed. She attributed the broad deceleration in hiring to a mix of both supply and demand factors, noting that this area warrants close monitoring as the year progresses. Her speech highlighted a desire for "greater clarity on what is pushing growth up and employment down."
Paulson's remarks provide insight into the Fed's deliberative approach. Unlike the explicit guidance sometimes offered, her comments, along with the vague projections from the December meeting chaired by Jerome Powell, suggest the central bank is prioritising data over a pre-set timeline for any future policy moves.
