Philadelphia Fed president Anna Paulson said on September 24 that further rate increases may be needed to bring inflation back to the Fed's 2% target. She backed the FOMC's recent quarter-point hike and pointed to tariffs, energy prices, and AI-driven investment as inflation drivers, while stressing that the labor market has stayed resilient through the tightening cycle.
Anna Paulson, president and CEO of the Federal Reserve Bank of Philadelphia, said on September 24 that additional interest rate increases may be necessary to drag inflation back to the central bank's 2% target. She endorsed the FOMC's recent quarter-point rate hike, which pushed the federal funds target range to 3.75%-4.00%.
The case for more tightening
Paulson noted that underlying inflation is currently running between 2.5% and 3%, above the Fed's target. According to Crypto Briefing: she indicated that should economic conditions continue to evolve along current projections, "additional modest rate tightening could be warranted".
The pressure isn't coming from one source. Paulson pointed to import tariffs as a driver of higher prices on goods entering the US economy. She also cited energy prices, with geopolitical tensions involving the US and Israel creating supply-side pressure.
Strong investment in AI and technology infrastructure is fueling demand in certain sectors, adding another dimension to the picture. Recent Fed forecasts suggest one more rate hike could arrive before the end of 2026, though futures markets are pricing in more aggressive action than the Fed is currently projecting.
A balancing act with the labor market
Paulson emphasized the importance of maintaining stability in the labor market, which she described as resilient despite the tightening cycle. She became president of the Philadelphia Fed on July 1, 2025, and made her remarks at a fintech conference. Her comments reflect a shift in how Fed officials are framing the balance of risks, with the discussion moving toward whether the current policy stance is restrictive enough to finish the job on inflation.
What this means for markets
Higher rates for longer directly increase borrowing costs for consumers and businesses. The gap between Fed projections and futures market pricing is worth watching, as it often creates volatility as it resolves in one direction or the other. Companies facing higher input costs from tariffs and energy prices have limited options: absorb the hit to margins or pass costs on to consumers.
Source: Crypto Briefing
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