Fed’s Paulson: Further ‘gradual’ rate hikes appropriate given high inflation

Federal Reserve Bank of Philadelphia Governor Anna Paulson emphasized the need for further 'gradual' rate hikes during her speech at the bank's 81st Annual Field Meeting Capstone. Paulson stated that these rate increases are appropriate given the high inflation currently impacting the economy. The exact path of the Fed's monetary policy will depend on how the economy evolves, but overall, a 'somewhat restrictive' approach is necessary.

The Fed has already supported its recent rate decisions, as inflation data shows lingering issues, with underlying inflation remaining between 2.5% and 3%. While the economy has been stronger than expected, with a robust job market, the high inflation risks mean that the Fed still has 'more work to do' to lower inflation. The US Dollar Index (DXY) has been consolidating gains near 102.25, driven by hot Consumer Price Index (CPI)-inspired gains.

Paulson's speech conveyed a hawkish message, with the FXS Speechtracker score reaching 8.1/10, above the historical average of 7.6/10. This indicates a tougher stance from the Fed compared to the established baseline.