Fed’s Paulson says more, gradual rate hikes needed to curb inflation

 Federal Reserve Bank of Philadelphia President Anna Paulson stated on Tuesday that the central bank must continue raising interest rates to address sticky inflation.

Paulson, in prepared remarks for the 81st Annual Field Meeting Capstone gathering in Conshohocken, Pennsylvania, said further gradual tightening of monetary policy appears appropriate.

"I continue to believe monetary policy needs to be somewhat restrictive to bring inflation back to 2 percent," Paulson said. Price pressures have remained above the Fed’s target for more than five years, with underlying inflation staying between 2.5% and 3%.

Paulson, who votes on the rate-setting Federal Open Market Committee this year, identified fighting inflation as her top priority, noting that the economy has shown unexpected strength and the job market remains stable.

Multiple Fed officials adopted a hawkish stance on interest rates after government data revealed consumer prices rose more than expected in October.

Paulson said the CPI report "suggests inflation pressures are still very much with us." She attributed rising inflation to tariffs, energy prices, and AI investment.

The Fed raised rates by 25 basis points for the first time in three years in September, with Chair Kevin Warsh largely reiterating the central bank’s commitment to its 2% inflation target. 

Markets are pricing in a 88.8% chance the central bank will raise rates by 25 bps again in December, CME Fedwatch showed.