Refuting Waller's faster tightening theory? Philadelphia Federal Reserve Chairman: Core inflation is still high, but gradual interest rate hikes can leave time for the market and policymakers

The Zhitong Finance App learned that Philadelphia Federal Reserve Chairman Anna Paulson (Anna Paulson) said that she supports a gradual increase in interest rates. At the same time, she mentioned that upward pressure on wages is still limited, and inflation expectations are still in line with the central bank's 2% inflation target.

“For now, it is appropriate to continue to gradually tighten policy,” Paulson said at an event organized by the Federal Reserve in Philadelphia on Tuesday.

“If inflation expectations rise, wage pressure intensifies, or core inflation rises further, I would like to act more quickly,” she added. “But right now, I'm not observing such signs.”

Federal Reserve officials kept the benchmark interest rate unchanged in the 3.75% to 4% range last month, after raising interest rates by 25 basis points in September. Since the interest rate meeting in October, several policymakers have stated that monetary policy still needs to be further tightened if inflation is to be brought back to the 2% target.

“Skipping a rate hike is just adjusting the pace of the rate hike, not a shift. There is probably still room for austerity in the future. However, when conditions permit, I prefer gradual tightening,” Paulson further explained. Slowing down the pace of interest rate hikes can allow time for households, businesses, and the financial sector to cushion adjustments, and also make it easier for policy makers to continuously evaluate economic data.

“The gradual path also works best when the policy direction is fully understood by the market,” she said. “If the market already anticipates more austerity, a gradual interest rate hike will not let us lag behind our policy goals.”

Dispute over the pace of interest rate hikes: Some officials support faster rate hikes

Although many officials advocated gradual tightening, several policy makers on Tuesday also sent a signal that the pace of interest rate hikes might need to be accelerated. Federal Reserve Governor Waller warned on Tuesday morning that the possibility of raising interest rates by 50 basis points in December is not ruled out.

Earlier, CPI data released by the US Bureau of Labor Statistics on Tuesday showed that core inflation excluding food and energy rose 0.3% month-on-month, higher than market expectations.

Commenting on this data, Paulson said that price pressure “is still prominent,” and that the core inflation index has always “stuck” between 2.5% and 3%. She pointed out that tariffs, energy costs driven up by the war in Iran, and a surge in data center construction have all boosted prices. Although the impact of tariffs is fading, the demand pressure from energy supply and artificial intelligence (AI) is “more difficult to judge.”

“Core inflation is above target and has yet to fall. “This shows that high inflation is not only due to factors that will subside on their own,” she said.

The chairman of the Philadelphia Federal Reserve, who has the right to vote in the FOMC this year, also mentioned that the labor market continues to tighten with stronger economic resilience and the support of consumer consumption.

“We have received sporadic reports that companies are considering increasing wage increases to meet the cost of living,” she said. “There is no indication in the data that this is a common phenomenon. But it's a trend I'll be watching.”