Fed policy focus: Balancing employment and price stability

3 hours ago 22

Oct 14, 2025, 10:15:12 AM IST

In her first speech as head of the Philadelphia Fed, Anna Paulson highlighted that rising risks to the job market could call for additional interest rate cuts. She also noted that trade tariffs are now less likely to push inflation higher than previously expected. Monetary policy, according to Paulson, should focus on balancing risks to employment and price stability. (Source: Reuters)

Agencies

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Labour Market Concerns

Paulson pointed out that risks in the labour market are increasing, although not dramatically. She emphasised that momentum in employment trends seems to be moving in the wrong direction. As a result, supporting the labour market should be a key focus of monetary policy at present.

Agencies

The Fed recently cut its benchmark interest rate by 0.25% to a range of 4.00%–4.25%. Paulson indicated that further easing of around 0.5% could occur before the end of 2025, with additional cuts possible in 2026 and 2027. She suggested that gradual rate adjustments, in line with Fed forecasts, would be the likely approach.

Reuters

While tariffs are expected to put some upward pressure on inflation, Paulson does not anticipate these gains to be long-lasting. She described the current policy stance as modestly restrictive, which helps contain inflationary pressures. Additionally, long-term inflation expectations remain stable, supporting a cautious approach.

iStock

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Neutral Rate Uncertainty

Paulson emphasised that the exact neutral interest rate—the rate that neither slows nor stimulates the economy—is uncertain. She stressed that the Fed would need to carefully monitor economic responses and adjust policy accordingly, rather than rushing into aggressive rate cuts.

Looking ahead, Paulson expects economic growth in 2026 to remain near its potential. Inflation is likely to rise initially and then subside as the effects of tariffs and past monetary policy measures play out. The central goal is to maintain labour market conditions close to full employment.

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Contingency for Inflation Surges

Paulson also cautioned that if inflation unexpectedly surges, the Fed may need to react by either keeping rates steady or increasing them. She reiterated that the Fed’s policy path would remain flexible and responsive to incoming economic data.

IANS

Anna Paulson became the president of the Philadelphia Fed in July 2025, succeeding Patrick Harker. Before this, she served as Research Director at the Chicago Fed. Her experience brings a research-focused perspective to monetary policy and labour market analysis. (Disclaimer: This slideshow has been sourced from Reuters)

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