Philadelphia Fed President Paulson Signals Possible Further Rate Hikes

Philadelphia Federal Reserve President Anna Paulson said Thursday that persistent inflation could call for modest further interest-rate tightening. Although she had previously supported holding rates steady, she noted that the latest policy meeting showed little sign of underlying price pressures easing. "Looking ahead, if conditions evolve as I expect, some modest further tightening may be warranted," Paulson said in a speech.

She added that while tariff-related price pressures have eased, factors such as the Middle-East conflict and increased AI investment are adding to inflationary risk. Paulson observed that consumer spending remains strong, the AI build-out is driving investment, and the labor market is stable, but "underlying inflation remains elevated" and the risk of persistently high inflation has risen.

New York Fed President John Williams, speaking in London, said he does not see a sudden change in data and noted that AI-driven demand is affecting some sectors, though not creating a broad cyclical imbalance. He referenced the median projection of another rate hike by year-end as a reasonable expectation.

The comments follow Fed Governor Michael Barr's earlier statement that additional hikes may be needed to curb sticky inflation. Market pricing now reflects better than a 60% probability of a second rate increase in October, according to CME Group data.