Paulson’s comments add a voting member’s voice to the hawkish chorus after the hot CPI report, which reinforces pricing for a December hike and a follow-up in January. Her emphasis on gradual steps tempers the case for a half-point move, but her three triggers for faster action leave that door open if data keeps running hot. That combination supports the US dollar and front-end Treasury yields, while a firmer hiking path remains a headwind for gold. Because she names energy prices as an inflation driver, any further Middle East-driven gains in oil now feed directly into the Fed’s tightening calculus.
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Earlier:
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Paulson favours steady hikes rather than sprints, but has set out exactly what would make her pick up the pace.
Summary:
- Philadelphia Fed President Anna Paulson, a 2026 FOMC voter, said further gradual tightening seems appropriate
- She said policy needs to be somewhat restrictive to return inflation to 2%, with underlying inflation stuck between 2.5% and 3%
- She would favour moving faster if inflation expectations drift up, wage pressures build or underlying inflation rises
- Paulson said the October CPI rise of 0.4% shows inflation pressures persist, driven by tariffs, energy and AI investment
- Futures price strong odds of a quarter-point hike on December 8-9 from the current 3.75% to 4% range, and another in January
Philadelphia Federal Reserve President Anna Paulson said on Tuesday that further gradual interest rate increases appear appropriate to bring down elevated inflation, and that she would favour moving faster if price pressures worsen.
In the text of a speech prepared for a gathering in Conshohocken, Pennsylvania, Paulson said monetary policy needs to be somewhat restrictive to return inflation to the Fed’s 2% target. Inflation has run above that goal for more than five years, she noted, with underlying pressures holding between 2.5% and 3%. She said the exact path of rates will depend on how conditions evolve and that she will be watching the data closely.
Paulson, a voting member of the Federal Open Market Committee this year, argued that a gradual approach has served the Fed well. In her view, it gives the economy time to adjust to higher borrowing costs while allowing policymakers room to assess the effects of their decisions. She said she has supported the Fed’s recent rate decisions and described bringing inflation down as her main priority, with the economy proving stronger than expected and the job market robust and stable.
She also set out the conditions under which she would favour a quicker pace. Paulson said she would want to act more quickly if inflation expectations drift higher, if wage pressures build, or if underlying inflation rises. She described risks to the inflation outlook as high and said the effects of AI and energy on prices are hard to gauge.
Her remarks came after October consumer price data showed a larger-than-expected rise, with the overall index up 0.4% on the month. Paulson said the report suggests inflation pressures remain very much present, pointing to tariffs, energy prices and AI investment as drivers. Economists saw signs that price increases once concentrated in a few areas are spreading more broadly.
Futures markets are pricing strong odds of a quarter-point rate hike at the Fed’s December 8-9 meeting, from the current target range of 3.75% to 4%, and a further increase in late January. Before the CPI release, Governor Christopher Waller said a reading like October’s could lead him to support a half-point move. The December meeting is now the key test of whether the Fed sticks with gradual steps or speeds up.
This article was written by Eamonn Sheridan at investinglive.com.