Fed President Paulson backs steady rates but warns of policy shift

Philadelphia Fed President Anna Paulson said Tuesday that she thinks the current level of interest rates is sufficient to keep inflation moving toward the central bank’s goal. In a CNBC interview, she confirmed her confidence in the Fed’s recent vote to hold the benchmark borrowing rate at its target range of 3.5% to 3.75%. Paulson added that she remains open to changing course if conditions shift.

The decision comes after the Federal Open Market Committee (FOMC) met last week and voted 9‑3 to keep rates unchanged. Inflation has stayed well above the Fed’s 2% target for most of the year, sparking debate among officials about whether the current policy is restrictive enough. Paulson said the vote was not a close call, noting that the majority view was clear. Some members, however, questioned whether the rate level could push inflation down quickly enough.

Paulson estimates that underlying inflation—excluding energy shocks and tariffs—lies between 2.4% and 2.8%. The core inflation figure the Fed uses was 3.3% in June, according to the Commerce Department. She said that if the core rate does not move lower, she would be ready to adjust rates. “I want to see more progress,” she said. “If we don’t see that progress, we have to be open to recalibrating monetary policy.”

Looking ahead, Paulson said she is keeping an “open mind” about changes the Fed chair has discussed, including the possibility of cutting the number of FOMC meetings from eight a year to fewer. She views such adjustments as healthy for the institution. The Fed’s next meeting will decide whether to maintain the status quo or shift toward tighter policy as inflation data continues to unfold.