US Federal Reserve’s Anna Paulson sees scope for more interest rate hikes amid inflation risks

Inflation “remains stubbornly elevated,” Paulson said in remarks at a regional Fed bank event. “Returning inflation to 2% is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labour market along the way.”

Paulson, who is also a voting member of the rate-setting Federal Open Market Committee, indicated that additional tightening could be appropriate. “Looking ahead, if conditions evolve as I expect, some modest further tightening may be warranted” to bring inflation back to the desired level, she said.

These comments were the first since the Fed raised its benchmark overnight interest rate by a quarter-percentage point last week, taking it to a range of 3.75%-4.00% as part of its effort to curb inflation.

Paulson added that she further supported the increase, noting that “the balance of risks had shifted” ahead of last week’s meeting and that “underlying inflation showed little to no progress.”

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Policymakers’ projections released after the meeting indicated one additional rate increase before the end of the year, although futures markets are pricing in significantly more hikes.
The Fed is seeking to control inflation as several factors continue to exert pressure, including President Donald Trump’s import tariffs and surging energy prices stemming from the US-Israeli war with Iran, Reuters reported.Paulson said robust investment in the technology sector was also contributing to inflationary pressure.

“Underlying inflation is running in a range of about 2.5 to 3%” and “the best I can say about underlying inflation this year is that it hasn’t gotten worse,” she said.

Paulson characterised the US economy as relatively strong.

“I see a resilient economy that is showing some signs of increased momentum,” she said. “Despite shocks from tariffs and the conflict in the Middle East, recent consumption growth has been strong, the AI buildout is driving investment, and the labour market is stable.”

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)