Paulson Keeps Open Mind on Future Policy as Inflation Shows Signs of Improvement
Philadelphia Federal Reserve President and CEO Anna Paulson said recent inflation improvement is not enough to determine future monetary policy. She emphasized that policymakers need more evidence on underlying inflation and supply-side shocks before making further decisions.
In an essay, Paulson noted that recent inflation data shows a welcome improvement, but it's only one step in the right direction. She stated that she's focused on gathering more information to understand what's happening to underlying inflation and the impact of supply shocks from energy and tariffs.
Paulson also mentioned that despite recent developments, including geopolitical tensions and rapid investments in artificial intelligence, the broader economic outlook has remained largely stable. The US economy expanded by 1.5% in the second quarter, while headline Personal Consumption Expenditures (PCE) inflation eased to 3.7% in June.
Paulson estimated that underlying inflation is running between 2.4 and 2.8%. She said that if policy is appropriately calibrated, signs of inflation coming down should be visible soon. However, if underlying inflation remains elevated, policymakers may have to consider tighter monetary policy.