Philly Fed's Paulson Backs Powell, Signals Rate Pause

Philadelphia Federal Reserve President Anna Paulson has voiced strong support for Fed Chair Jerome Powell and signaled she is comfortable holding interest rates steady at the upcoming January meeting.

In her first national interview since taking office last July, Paulson told the Wall Street Journal that Powell is a highly effective leader. Her comments provide a fresh endorsement for the Fed Chair amid rising political scrutiny.

Paulson Defends Powell Amid Political Pressure

Paulson's remarks come just days after Chair Powell revealed he is facing a criminal investigation concerning the renovation of the Fed's headquarters in Washington—a probe he stated was motivated by President Trump's push for lower interest rates.

"His statement was really strong. I think it really speaks for itself," Paulson said, aligning herself with several Fed colleagues who have publicly defended Powell's integrity this week.

She highlighted Powell's broad appeal, noting that even her 20-year-old son sends her internet memes that celebrate the Fed Chair.

Monetary Policy Outlook: A Steady Hand in January

As a new voting member on interest rates this year, Paulson's perspective carries significant weight. She supported the central bank's rate cuts at its last three meetings, including the December decision that brought the target range to between 3.5% and 3.75%.

Looking ahead to the January 27-28 meeting, Paulson indicated she is comfortable maintaining the current policy stance. She views present interest rates as slightly above neutral, a level she believes is appropriate for guiding inflation back down to the Fed's 2% target.

"I want monetary policy restrictiveness to be playing a role to get us all the way back to 2%," she explained.

Conditions for Future Rate Cuts

While favoring a pause for now, Paulson suggested she could be open to modest rate cuts later in 2026 under specific conditions. A policy shift would depend on one of two potential developments:

• Inflation Eases: Data confirms that price pressures are clearly diminishing.

• Labor Market Weakens: Job market conditions deteriorate unexpectedly.

Paulson added that she is paying close attention to January price data, as many businesses typically reset their prices at the start of the year.

A Calmer View on Inflation

Compared to some of her colleagues, Paulson described herself as less concerned about inflation. She cited evidence suggesting that the increases in goods prices seen in 2025 are likely to reverse this year, providing a potential tailwind for disinflation.