Fed's Paulson: More gradual rate hikes needed to fight inflation

Philadelphia Fed President Anna Paulson said Tuesday the central bank must continue raising interest rates to combat persistent inflation, calling further gradual policy tightening appropriate. She stated monetary policy should remain somewhat restrictive to bring inflation back to the 2% target. Paulson, a voting member of the Federal Open Market Committee this year, said price pressures have exceeded the Fed's goal for over five years, with underlying inflation staying between 2.5% and 3%. She cited tariffs, energy prices, and AI investments as drivers, while noting the economy has shown unexpected strength and the labor market remains stable. The Fed raised rates by 25 basis points in September, the first hike in three years, with Chair Kevin Warsh reaffirming the 2% inflation commitment. Markets now price an 88.8% chance of another 25-basis-point increase in December, following October consumer price data that came in stronger than expected.