Federal Reserve Bank of Philadelphia President Anna Paulson said additional interest-rate hikes may be needed to bring U.S. inflation back down to the central bank's 2% target, adding her voice to a growing chorus of policymakers wary that price pressures are not fading fast enough. Paulson, a voting member of the Federal Open Market Committee this year, said returning inflation to that target remains a top priority even as she described the broader economy as performing pretty solidly.
Underlying Inflation Remains Above Target
The comments, reported by Reuters, come as U.S. inflation has been running stubbornly elevated for months. Paulson put underlying inflation at about 2.4% to 2.8%, with only mild progress in reducing it.
More Rate Hikes Remain Possible
Paulson said additional interest-rate hikes may be needed to bring inflation back to the Fed's target. Market pricing and survey expectations pointed to further increases.
As of Aug. 4, the central bank had kept its policy rate at 3.50%-3.75% throughout 2026. Ahead of the September meeting, market pricing and survey expectations pointed to further tightening.
Oil Prices and Tariffs Add to the Pressure
Inflation concerns have included tariffs, energy prices and Middle East conflict. Paulson also cited strong technology-sector investment, driven by the AI buildout, as a factor helping push inflation higher.
The labor market was described as stable, with unemployment at 4.2%. Consumers were characterized as resilient, though consumption growth was modest.
What Wall Street Expects Next
Market watchers are largely betting the Fed isn't done tightening. Research firm MUFG said before the September meeting that it expected the Fed to hike rates by 25 basis points and predicted that markets would keep one to two more hikes priced in beyond whatever got delivered in September, according to MUFG Research. The firm assigned a 55% to 60% probability to a December rate hike, followed by rates holding steady in a 4% to 4.25% target range.
MUFG also noted that the hotter August CPI reading spoiled the disinflation momentum that had built up earlier in the summer, a dynamic that appears to be shaping the debate among Fed officials like Paulson. Reuters likewise reported that market pricing points to expectations for a second rate hike in December. Paulson said she will support the policy path that returns inflation to 2% while weighing risks to the labor market, signaling that further hikes remain firmly on the table even as officials try to avoid tipping the resilient economy into a downturn.
