Philadelphia Fed's Harker: Holding Rates Steady Is Prudent, Watching Core Inflation Progress
Miles Bennett
Philadelphia Fed President Anna Paulson said the current 3.5%-3.75% rate is restrictive enough to bring inflation back to target, calling the hold vote 'not a hard decision' — but warned she is open to recalibrating policy if underlying inflation stalls.
Why does Paulson think standing pat is right?
She views the current rate as "modestly restrictive" — enough to pull inflation back to 2% within a reasonable timeframe.
The FOMC voted 9-to-3 last week to hold rates steady. Paulson voted with the majority and called it a straightforward decision.
This means → in her reading, the existing rate is already doing its job — no need to tighten further or ease up.
Where does underlying inflation actually stand?
Paulson estimates that stripping out energy shocks and tariffs, underlying inflation — the trend after removing one-off noise — is running between 2.4% and 2.8%.
Official data, however, show the Fed's preferred core inflation gauge at 3.3% in June.
In plain terms = her own read is rosier than the headline number, but both are still well above the 2% target.
What are the three dissenters worried about?
Three FOMC members voted against the hold, questioning whether the current rate is restrictive enough.
This reflects a genuine split inside the Fed: the same data, two opposite conclusions on whether policy is tight enough.
Paulson herself acknowledges only "slight progress" on inflation but chose to wait rather than act now.
What would make her change course?
Paulson drew a clear line: if progress on underlying inflation stalls, she is open to recalibrating monetary policy.
Her words: "We need to get to 2%."
This means → she stands on the "hold" side today but has left the door open — if the data deteriorate, a rate hike remains on the table.
Could the FOMC's meeting schedule change?
Chair Kevin Warsh is discussing reducing the FOMC's annual meetings from the current eight.
Paulson called the conversation "useful" and said she is open to the idea.
In plain terms = fewer meetings means a longer decision window each time — and markets would concentrate their bets more heavily on each session.
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