US Fed's Anna Paulson keeps 'open mind' on rate decisioin as inflation remains too high

Philadelphia Fed President Anna Paulson said on Tuesday that she was keeping an “open mind” about the path ahead for monetary policy, including the possibility of higher interest rates, Reuters reported.

“The recent improvement in some inflation data is welcome” and “it is a step in the right direction, but it ‌is only one step,” the official said in a statement from her bank.

On the Fed’s next policy move, Paulson said she was committed to “keeping an open mind” while assessing the evidence and determining the appropriate course.


She added that her top priority was returning inflation to 2% while maintaining full employment. In a CNBC interview following the statement, Paulson said a stronger response to inflation could involve raising rates or keeping them unchanged for longer.

The remarks were Paulson’s first public comments since last week’s Federal Open Market Committee meeting.

Policymakers kept the federal funds target range unchanged at 3.5% to 3.75% as inflation remained well above the Fed’s 2% goal, a decision Paulson said she supported. Three officials dissented in favour of a rate increase, citing persistent inflation. Fed Chair Kevin Warsh declined to signal the likely direction of monetary policy during his post-meeting press conference.

Paulson said current data indicate that Fed policy is exercising some restraint on the economy and that incoming figures will guide her interest-rate decisions.

She said an appropriately calibrated policy stance should produce clearer signs of easing inflation. However, if underlying price pressures remain persistently high, continued lack of progress would indicate the need for tighter policy.

Paulson added that the labour market has stabilised, but inflation remains “too high.”

Meanwhile, on the energy front, “oil prices have since jumped and remain volatile, but the brief period of Middle East stability demonstrated that supply shocks can be temporary, reinforcing the case for looking through such disruptions when setting monetary policy.”

Paulson explained to CNBC why the Fed should avoid overreacting to supply-driven price pressures.

"We saw there that when we had the lull in the conflict in the Middle East, oil prices came down" and there was relief on inflation pressures, Paulson said. "If I had tried to affect that through monetary policy...I would have been...too late, it wouldn't have hit at the right time, so... that's the logic for looking through supply shocks," she added.

Paulson estimated underlying inflation at between 2.4% and 2.8%, noting that such price pressure “has been elevated for a long time, and it is what I am most focused on as I evaluate our progress toward the 2% target.”