Fed's Paulson states that monetary policy is still effective in reducing inflation.

NEW YORK, Dec 12 - The President of the Federal Reserve Bank of Philadelphia, Anna Paulson, expressed concerns on Friday regarding the current condition of the labor market. She emphasized that monetary policy remains effective in addressing inflation, with the goal of reaching the Fed's 2% target.

In a speech prepared for an event hosted by the Delaware State Chamber of Commerce in Wilmington, Paulson remarked, "I remain slightly more concerned about the weakness in the labor market than the risks of inflation rising further." She added that she expected inflation to decrease over the next year, largely due to the easing of tariff impacts, which have been a significant factor in pushing prices above the target this year.

Although Paulson did not provide direct commentary on future interest rate policy, she noted that "with the federal funds rate currently between 3.5% and 3.75%, I continue to view monetary policy as somewhat restrictive." She emphasized that this level of rates, combined with the cumulative effect of prior tightening measures, should help bring inflation closer to the Fed's target of 2%.

Paulson characterized the labor market as "bending, but not breaking," acknowledging that the Fed's decision to reduce rates by 75 basis points across the last three meetings has helped mitigate further deterioration in the job market.

Earlier this week, the Federal Open Market Committee (FOMC) lowered the target range for interest rates by a quarter percentage point, bringing it to between 3.5% and 3.75%. This decision was made to strike a balance between supporting the job market and addressing persistent inflation.

Despite the absence of firm guidance about a potential rate cut in January, Paulson noted that the Fed will be able to make more informed decisions in the new year when she assumes voting rights on the FOMC. "By the time the FOMC convenes at the end of January, we will have much more data, which should provide greater clarity regarding inflation, employment, and the associated risks," she said.

Sources:

• Fed's Paulson says monetary policy still working to cool inflation