Philadelphia Fed Warns of More Rate Hikes to Tame Sticky Inflation

Philadelphia Fed President Anna Paulson warns that additional interest rate increases may be necessary to bring inflation back down to the central bank's target of 2%. Speaking at the 10th Annual Fintech Conference, Paulson said 'some modest further tightening may be warranted' if conditions evolve as expected. Underlying inflation remains above the Fed's goal, with prices holding between 2.5% and 3%, despite a quarter-point rate hike in September.

The Philadelphia Fed chief emphasized that returning inflation to 2% is non-negotiable. She pointed out that AI-related investment is driving up demand-side pressure, leading to higher import prices for electronics. Meanwhile, the labor market remains strong, with an unemployment rate of 4.1%, and real consumption growing at a rate of 3.4% in Q2.

Other Fed officials have also hinted at further tightening, including New York Federal Reserve President John Williams and Fed Governor Michael Barr. Major brokerages such as Goldman Sachs and Bank of America now expect at least one additional hike before year-end, with October emerging as a likely next date. The Fed's September Summary of Economic Projections puts the median year-end federal funds rate at approximately 4.1%.