Anna Paulson, president of the Federal Reserve Bank of Philadelphia, indicated on Thursday that further interest rate adjustments may be required to successfully combat persistent price pressures. Speaking at a fintech conference in her district, she noted that while recent data shows some moderation in inflation, the current trajectory remains concerning.
Paulson’s comments follow the Federal Open Market Committee’s decision last week to raise the benchmark borrowing rate by 0.25 percentage points, pushing the federal funds rate to a target range of 3.75% to 4%. She described this move as a step toward aligning policy with her assessment of what is needed to return inflation to the central bank’s 2% goal, while carefully balancing risks to the labor market.
“Looking ahead, if conditions evolve as I expect, some modest further tightening may be warranted,” Paulson stated in her prepared remarks.
Although summer data suggested a cooling in broader price trends, Paulson emphasized that core inflation metrics are still running between 2.5% and 3%. She highlighted that this gap above the 2% target has shown minimal signs of narrowing, adding that the most optimistic evaluation of underlying inflation for the year is simply that it has not deteriorated further.
Her stance coincides with shifting market expectations. Recent trading activity has driven longer-duration Treasury yields to their highest levels since 2004. Traders are now pricing in a 64% probability of another rate hike in October, with additional increases expected by January. Fed funds futures contracts imply a rate of 4.8% by the end of 2027, suggesting the market anticipates four more quarter-point increases.
The sentiment aligns with comments from New York Fed President John Williams, who stated earlier Thursday that he considers another rate lift before the year’s end to be a reasonable expectation.
More rate hikes? My mortgage adjustment is coming up next month. If this continues, I might just move abroad.
The gap between Paulson’s ‘modest’ language and the market pricing in 64% for October is fascinating. Huge disconnect.
Does anyone else think the Philadelphia Fed is just being conservative to hedge against unexpected price spikes? Seems cautious.
Finally, someone admitting core inflation is stuck above target. Modest tightening might actually be the right call here.
Wait, the market expects four more hikes by 2027? That sounds way too aggressive given current data.