Paulson Keeps Open Mind on Future Policy Amid Inflation Improvement

Philadelphia Federal Reserve President and CEO Anna Paulson expressed cautious optimism about recent improvements in inflation but emphasized that more evidence is needed to determine the future course of monetary policy. In an essay following the Federal Open Market Committee's decision to keep the target range for the federal funds rate unchanged, Paulson said the recent improvement in some inflation data was welcome, but it was only one step.

Paulson noted that despite recent developments, including geopolitical tensions in the Middle East and changes in tariff policies, the broader economic outlook has remained largely stable. The US economy expanded by 1.5 per cent in the second quarter, while headline Personal Consumption Expenditures (PCE) inflation eased to 3.7 per cent in June, largely due to lower energy prices.

Paulson estimated underlying inflation, after excluding temporary effects of tariffs and energy prices, remained between 2.4 per cent and 2.8 per cent. She said policymakers need more evidence on underlying inflation and the impact of supply-side shocks before making further policy decisions.