Philadelphia Fed's Paulson Backs Further Rate Hikes — SkimNews
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- Anna Paulson said she and her Fed colleagues may need to raise rates further, one week after the FOMC hiked the key funds rate to a 3.75%-4% target range to return inflation to 2%.
- Underlying inflation is still running around 2.5%-3%, 'well above our 2% target, and the gap has shown little signs of closing,' Paulson said in remarks at a fintech conference, noting price pressures have held up even outside oil supply shocks from the Iran war and tariffs.
- Paulson called the best that can be said about underlying inflation this year that it 'hasn't gotten worse,' while describing economic output as 'solid' and the labor market as 'holding steady.'
- Treasury yields have surged on shifting rate expectations, with longer-duration yields hitting highs not seen since 2004, and traders now pricing a 64% chance of an October FOMC hike plus another move in January, per CME Group's FedWatch tool.
- Fed funds futures contracts are implying a rate of 4.8% by the end of 2027 — as many as four quarter-point increases ahead of today's 3.75%-4% target.
- New York Fed President John Williams said separately Thursday that another rate hike before year-end would be 'reasonable,' signaling broader FOMC alignment with Paulson's tightening stance.
Why it matters: Paulson's framing — that the best she can say about inflation is it 'hasn't gotten worse' — sets a notably low bar for the Fed's tolerance, and her comments align with Williams's hawkish lean, suggesting the FOMC is coalescing around additional hikes. With traders now pricing four more quarter-point increases by 2027 and longer-duration Treasury yields at levels unseen since 2004, borrowers and mortgage holders face a sustained higher-for-longer cost of capital rather than the rate cuts markets hoped for earlier this year.
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