Philly Fed's Paulson signals supports for two more quarter-point cuts this year

[Federal Reserve Building in Washington DC]
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Federal Reserve Bank of Philadelphia President Anna Paulson said Monday that it would be appropriate to cut interest rates gradually through the rest of the year and into next, alinging with the central bank's median policy path from its Summary of Economic Projections.

Laying out her first economic outlook since becoming Philly Fed chief, Paulson said that policy "should look through" the impact of tariffs on prices. She contended that “tariffs will increase the price level, but they won’t leave a lasting imprint on inflation,” citing anchored inflation expectations, as well as smaller than expected price gains from tariffs so far and businesses not passing on higher costs to consumers in order to keep market share.

“Given my views on tariffs and inflation, monetary policy should be focused on balancing risks to maximum employment and price stability which means moving policy to a more neutral stance,” Paulson said in remarks prepared for delivery at a National Association for Business Economics in Philadelphia.

Against a backdrop of growing risk to the labor market, the Federal Open Market Committee's decision last month to cut rates by 25 basis points "made sense," she said, signaling two more quarter-point rate cuts this year based on the median SEP projection.

For next year, she expects [https://www.philadelphiafed.org/the-economy/monetary-policy/251013-philadelphia-feds-paulson-tariffs-will-not-leave-lasting-imprint-on-inflation] “growth near potential, and inflation rising and then subsiding as tariffs, together with current and past monetary policy restrictiveness, work their way through. If the economy evolves as I expect, the monetary policy adjustments we make this year and next will be sufficient to keep labor market conditions close to full employment.”

UPDATE AT 1:15 PM ET: Paulson suspected that the breakeven rate in payroll growth is lower than 75K per month, noting labor supply and demand for workers both have been falling at about the same clip.

This is a developing story. Check back for updates.

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