Nick Timiraos, a prominent financial journalist often referred to as the "new Fed whisperer," wrote that Federal Reserve Chair Jerome Powell has become an unexpected "folk hero," with numerous memes circulating online praising his stewardship of the central bank. Philadelphia Fed President Anna Paulson knows this because her 20-year-old son sends these memes to her.
In an interview on Wednesday, Philadelphia Fed President Paulson stated, "Many people are impressed by his leadership, and I am one of them." This was Paulson's first interview with a national media outlet since taking office last July.
Timiraos mentioned in his latest article that Powell disclosed on Sunday he is facing a criminal investigation related to the renovation of the Fed's Washington headquarters, but Powell indicated the investigation is actually about monetary policy and former President Trump's desire for lower interest rates.
Regarding this, Paulson said, "His statement was very powerful, and I think it speaks for itself. Powell is a very effective chair, as were his predecessors. For decades, the Fed has had very strong leadership, which I believe has been beneficial for the American people."
Having previously served as the Chicago Fed's research director, Paulson has attended the Fed's interest-rate setting committee meetings since 2019. From this perspective, she finds Powell's ability to foster broad and open discussions impressive. She said, "You need to create an environment where people can make decisions that are good for the institution and the economy. Part of the job as chair is to navigate that process."
Timiraos pointed out that Paulson echoed the views of several Fed colleagues this week, who also endorsed Powell's integrity and leadership. At the end of last year, these Fed officials were divided on how to set interest rates, and Powell faced increasing opposition when pushing for rate cuts.
Currently, Paulson stated that she agrees with the mainstream view among markets and officials: there is no need to rush into another rate cut. She is a formal voting member of the rate-setting committee this year and supported the Fed's decision to cut the short-term benchmark rate at the last three meetings, most recently in December, lowering the target range to 3.5%-3.75%.
Paulson said she expects that by the end of this year, substantial progress will have been made in returning inflation towards the Fed's 2% target; however, she would also be comfortable holding rates steady at the upcoming January 27-28 meeting. She believes that current rates are still slightly above the "neutral level" that neither stimulates nor restrains economic growth, which at this stage helps complete the final work of bringing down inflation. "I want the restrictiveness of monetary policy to continue working to pull inflation all the way back to 2%."
However, Paulson also said she might support small rate cuts later this year under two conditions: first, if inflation data confirms her judgment that price pressures are easing; and second, if there are signs of an unexpected deterioration in labor market conditions.
Paulson is paying particular attention to the January price data due next month, as businesses often reset prices at the start of the year. In other words, if companies plan significant price increases, it will soon show up in the data.
If her baseline assessment of steady economic growth, falling inflation, and a stable labor market holds true, then rates should be at a neutral level, which Paulson believes would be slightly lower than the current level.
Timiraos stated that Paulson's current views position her on the dovish side within the rate-setting committee, as she believes the risks to the labor market are "slightly higher" than the risk of stubbornly high inflation.
Last year, about 95% of new private-sector jobs in the US were concentrated in one industry—healthcare and social assistance. Regarding this, Paulson said that if an economy truly feels robust and healthy, it shouldn't seem to be creating jobs in just one industry.
Paulson mentioned that research shows during periods like the current one, where the labor market is slowing but economic output measured by GDP remains strong, labor market signals often ultimately prevail. However, Paulson also emphasized that past experience does not guarantee future outcomes. For example, if the economy is on the threshold of a productivity boom, economic activity might remain strong with less demand for labor.
Paulson said the biggest economic surprise for her in 2025 has been the extent of the labor market cooling, but the fact that this process hasn't accelerated is truly unusual. She added, "The labor market could crack quickly. Therefore, any sign of cracking rather than bending would be a signal I would watch very closely."
Paulson emphasized that it is crucial for the Fed to ensure inflation returns to the 2% target. However, compared to some colleagues, she is less concerned about the inflation outlook because she sees signs that last year's rise in goods prices may reverse this year. Business executives and owners indicate they are more focused on maintaining market share than in past years and are therefore more cautious about raising prices and losing customers. "Demand isn't so strong that they can easily raise prices. Companies are being very careful, very prudent now."
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