Paulson: Inflation Improvement 'Only One Step', Policymakers Need More Evidence

Philadelphia Federal Reserve President and CEO Anna Paulson said the recent improvement in inflation is 'only one step' towards achieving price stability and maximum employment. In an essay released after the Federal Open Market Committee (FOMC) decided to keep the target range for the federal funds rate unchanged, Paulson emphasized that policymakers need more evidence on underlying inflation and supply-side shocks before making further policy decisions.

The US economy expanded by 1.5% in the second quarter, while headline Personal Consumption Expenditures (PCE) inflation eased to 3.7% in June, largely due to lower energy prices. However, Paulson estimated underlying inflation, after excluding temporary effects of tariffs and energy prices, remained between 2.4% and 2.8%. She also noted that expectations remain well-anchored.

Paulson said policymakers are keeping an 'open mind' to ensure policy delivers price stability and maximum employment. She suggested two possible interpretations of the current policy stance: if underlying inflation comes down, it could signal that policy is appropriately calibrated; if not, more restrictive policy might be needed.