Fed's Paulson Keeping an ‘Open Mind' on Interest Rates

• Paulson is in the 'hold' camp but is growing more concerned about inflation, citing subdued wage growth, elevated mortgage rates, and a muted housing market.
• She states that current policy is 'mildly restrictive' but might not be 'restrictive enough' to deliver the 2% inflation target.
• Paulson's 'reaction function' requires 'months' of improving inflation data, stable hiring and wage growth, and contained tariff, energy, and AI inflation pressure. If underlying inflation remains stubbornly elevated, more restrictive policy would be needed.

Philadelphia Fed President Anna Paulson is growing concerned about inflation, suggesting current policy may not be restrictive enough to reach the 2% target. She outlines conditions for holding rates but warns that persistently elevated inflation would signal the need for more restrictive policy, implying potential future rate hikes.