Philly Fed’s Paulson Sees Room for Cuts ‘Later in the Year’
Philadelphia Fed President Anna Paulson said that the Federal Reserve may be able to cut interest rates further if inflation cools—but suggested that any additional reductions might not be coming right away.
Paulson, entering her first year as a voting member of the Fed’s policy committee, said in a speech in Philadelphia Saturday that she is cautiously optimistic price increases may ease in the months ahead. She said that at 3.5% to 3.75%, the Fed’s interest-rate target is still “a little restrictive,” meaning it is high enough to lean against inflation, which could eventually allow further cuts.
If inflation abates and the economy remains on track otherwise, “some modest further adjustments to the funds rate would likely be appropriate later in the year,” Paulson said, according to a published text of her remarks.
Paulson said in the speech that she supported the three quarter-point rate cuts that the Fed voted through during the fall, as officials shifted their attention to cushioning a weaker labor market. Policymakers have gotten “divergent signals” about the job market’s health that, taken together, suggest it is bending but not breaking, Paulson said, adding that she is waiting for clarity from additional data. Her comments suggested she may want to see more evidence about how the economy evolves in the months ahead before backing further policy adjustments.
Minutes of the Fed’s December meeting recorded that some officials expressed hesitance about additional cuts in the near future, without identifying them by name. Bets in interest-rate futures markets show that so far, traders broadly expect the Fed to hold rates steady at its next meeting later this month.
The December jobs report, due Friday, could tilt the Fed’s calculus if it shows that the labor market worsened significantly versus November, when unemployment ticked up to 4.6%.
President Trump, who has demanded that the Fed bring rates lower, is deep into a selection process to choose a successor to Fed Chair Jerome Powell, whose term at the Fed’s helm expires in May. Any Fed chair must win the majority support of the central bank’s 12-member policy committee in order to adjust interest rates.