Philadelphia Fed’s President Anna Paulson stated that the Federal Reserve could potentially lower interest rates further if inflation decreases—but indicated that any extra cuts may not happen immediately.
Paulson, beginning her first year as a voting member of the Fed’s policy committee, expressed in a speech held in Philadelphia on Saturday that she is cautiously hopeful that price increases might decrease in the coming months. She mentioned that with the Fed’s interest-rate target at 3.5% to 3.75%, it is still “somewhat restrictive,” indicating that it is high enough to counter inflation, which could eventually lead to more reductions.
If inflation decreases and the economy continues on its current path, “some small additional changes to the interest rate would probably be suitable later this year,” Paulson stated, as reported in a released version of her speech.
Paulson stated in her speech that she backed the three-quarter-point interest rate reductions approved by the Fed during the fall, as officials focused on mitigating a weakening job market. She mentioned that policymakers have received “divergent signals” regarding the labor market’s condition, which collectively indicate it is under pressure but not collapsing. Paulson added that she is waiting for more clarity from further data. Her remarks implied that she might want to observe how the economy develops over the coming months before supporting additional policy changes.
The minutes from the Fed’s December meeting indicated that certain officials were cautious about making further reductions in the near term, though they were not named. Wagers on interest rate futures suggest that traders currently anticipate the Fed will keep rates unchanged at its upcoming meeting later this month.
The jobs report for December, scheduled for release on Friday, might influence the Fed’s decisions if it indicates a notable deterioration in the job market compared to November, when unemployment rose to 4.6%.
President Trump, who has been pushing for the Federal Reserve to reduce interest rates, is currently in the process of selecting a replacement for Fed Chair Jerome Powell, whose tenure as head of the central bank will end in May. To take over the position, any potential Fed chair must receive the majority backing of the central bank’s 12-member policy committee in order to influence interest rate decisions.
Write to Matt Grossman atmatt.grossman@wsj.com