Paulson Keeps Open Mind on Future Policy Amid Inflation Improvement

Philadelphia Federal Reserve President Anna Paulson said recent inflation improvement is 'only one step' toward stabilizing prices, and she's keeping an open mind on future policy. 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 before making further decisions.

The recent easing of headline Personal Consumption Expenditures (PCE) inflation to 3.7% in June was a welcome development, but Paulson noted that this improvement is temporary and not sufficient to determine the future course of monetary policy. She estimated underlying inflation remains between 2.4% and 2.8%, which is what she's most focused on as she evaluates progress toward the 2% target.

Paulson also commented on the labor market, saying conditions remain stable with an unemployment rate staying between 4% and 4.5% since June 2024 and standing at 4.2%. She mentioned that policymakers may have to consider tighter monetary policy if underlying inflation continues to remain elevated.