Paulson sees possible need for another Fed rate hike to curb inflation

Philadelphia Fed President Anna Paulson's remarks have hit the wires:

• The US central bank might have to lift interest rates once more to bring inflation down.
• The September rate increase helped shift policy into a stronger anti-inflation stance.
• She pledges to back whatever actions are necessary to return inflation to the 2% target.
• The most favorable thing one can say about inflation is that it hasn't deteriorated further.
• Inflation risk balance had shifted ahead of the September policy gathering.
• The AI buildout is contributing to inflationary pressures.
• Core inflation "remains stubbornly high."
• The economy is resilient and shows signs of growing momentum.
• The labor market remains stable.

Paulson's tone is hawkish, according to analysis. She sees scant proof that inflation is moving back toward 2%, while a steady labor market and resilient economy give the Fed room to maintain pressure. Her remarks keep another rate increase on the table but don't suggest the next move is certain. For traders, the key will be whether upcoming inflation data starts showing the progress she indicates is lacking.

Other Fed officials have echoed similar views. Cleveland Fed President Beth Hammack earlier today stated growth is solid, the labor market is near maximum employment, inflation remains high, and risks lean upward. She cautioned that the longer high inflation lingers, the tougher and more expensive it could be to reduce. Richmond Fed President Tom Barkin said inflation risks outweigh employment risks and didn't rule out further hikes. Fed Governor Michael Barr noted that additional policy adjustments are likely in his base case. For traders, Paulson's comments bolster the argument for another hike, though officials haven't committed.

Additionally, over the past few days, more Fed officials with hawkish leanings include:

• Williams
• Barr
• Musalem
• Collins
• Paulson
• Hammack
• Schmid

This could frustrate the President and add pressure on new Fed Chair Warsh, who has been hawkish but needs to maintain regular talks with the President, who has a different agenda—especially with the November election approaching.

The next Fed meeting is scheduled for late October (October 28), just before the November 4 midterm elections. President Trump previously criticized former Fed Chair Powell for raising rates ahead of an election, calling it politically motivated.