Philadelphia Federal Reserve President Anna Paulson said Thursday, September 24, that additional interest rate increases may be necessary to bring inflation back to the central bank's 2% target, in her first public remarks since the Fed's rate hike the previous week.

What Paulson Said

Speaking at an event at her regional Fed bank, Paulson said inflation "remains stubbornly elevated." "Returning inflation to 2% is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way," she said. Looking ahead, she added: "if conditions evolve as I expect, some modest further tightening may be warranted" to bring inflation back toward the desired level.

Why This Marks a Notable Shift

Paulson, who began her tenure as Philadelphia Fed President in July 2025, had initially leaned dovish. In her very first speech in the role, she argued that rising risks to the job market called for more interest rate cuts, saying at the time that trade tariffs were unlikely to push up inflation as much as many feared. Thursday's remarks represent a clear reversal from that earlier position — she now says: "I will support doing what's needed to get inflation back to 2%."

Her Reasoning for the Reversal

Paulson explained that by last week's policy meeting, it had become clear that underlying inflation wasn't showing signs of coming down. She said the September rate hike "brings policy closer to what I believe is needed to return inflation to 2% at a pace that balances inflation with risks to the labor market." She noted that "the balance of risks had shifted" ahead of last week's meeting, and that "underlying inflation showed little to no progress." Quantifying the problem, she said "underlying inflation is running in a range of about 2.5% to 3%," adding bluntly: "The best I can say about underlying inflation this year is that it hasn't gotten worse."

Her Role in the Fed's Decision-Making

Paulson is a voting member of the rate-setting Federal Open Market Committee this year, giving her direct influence over the central bank's policy path. Her comments come exactly one week after the Fed raised its benchmark overnight rate by a quarter percentage point, bringing it to a range of 3.75%-4.00% — the first hike since 2023.

What's Driving the Persistent Inflation Pressure

Paulson cited several factors contributing to sustained inflation, including President Donald Trump's import tariffs and surging energy prices stemming from the ongoing US-Israeli war with Iran. Notably, she also flagged a factor less commonly cited in this context: strong investment in the technology sector, saying the ongoing AI infrastructure buildout is itself contributing to inflationary pressure — a dynamic tied to the massive capital expenditure and resource demand generated by the current AI investment boom.

A Broadly Positive Read on the Rest of the Economy

Outside of inflation specifically, Paulson characterized the broader economy in relatively upbeat terms, saying economic output "has been solid" while the labor market is "holding steady." That combination — a still-resilient economy alongside stubborn inflation — is part of what's giving Fed officials, including Paulson, more confidence to continue tightening without appearing to significantly damage growth or employment in the near term.

Part of a Broader Chorus of Hawkish Fed Voices

Paulson's comments add her to a growing list of Fed officials publicly signaling openness to further tightening, following Fed Chair Kevin Warsh's hawkish Jackson Hole address last month and the committee's unanimous vote for last week's hike. Her remarks mark her as "the latest Fed official" in this chorus, reinforcing the sense that the committee's hawkish shift extends well beyond Warsh alone.

What Markets Are Pricing In

Policymakers' own projections released after last week's meeting penciled in one additional rate increase before the end of the year. However, futures markets are pricing in significantly more hikes than the Fed's own median projection suggests — a gap that reflects genuine uncertainty about how aggressively the central bank will ultimately need to move. Markets have already responded with a notable bond selloff: longer-duration Treasury yields climbed this week to their highest levels since 2004.

What's Next

With Paulson now joining the more hawkish wing of the FOMC and futures markets pricing in additional tightening beyond the Fed's own guidance, all eyes turn to upcoming inflation and labor market data for signals on whether the committee's next move comes as soon as October or is pushed to December. For continuing coverage, see the full CNBC report.