Philadelphia Fed president says she's keeping an 'open mind' on rates, watching inflation

Philadelphia Fed president says she's keeping an 'open mind' on rates, watching inflation

Jennifer Schonberger · Senior Reporter

Tue, August 4, 2026 at 4:34 PM GMT+3 3 min read

Philadelphia Federal Reserve president Anna Paulson said Tuesday that she supported the decision to hold interest rates steady last week and is keeping an open mind about next steps on setting rates, depending on where inflation moves.

"The recent improvement in some inflation data is welcome," Paulson said in a speech titled "Keeping an Open Mind."

"It is a step in the right direction, but it is only one step … I am keeping an open mind about where policy goes from here," she said.

Paulson said she's focused on gathering more information to better understand what's happening with inflation. Assessing underlying inflation — what price growth would be without the temporary effects of tariffs and energy shocks — she estimates it's running somewhere between 2.4% and 2.8%. Paulson underscored that inflation has been elevated for a long time, and that persistence is what she's most focused on as she evaluates bringing it back to the Fed's 2% goal.

As the conflict in the Middle East has repeatedly subsided and then flared up again, old tariffs expired, new tariffs were put in place, and more artificial intelligence investments were announced, Paulson said the economy looks fairly the same and the job market is stable.

She sees two scenarios for interest rates and how the current range of 3.5% to 3.75% is impacting inflation.

One possibility, she said, is that rates are mildly restrictive and will bring inflation to 2% in an acceptable time frame. Paulson pointed to pressures on consumers and businesses, noting anecdotal evidence that the chief executive of a large consumer goods manufacturer told her that, despite increased costs on multiple fronts, his firm is keeping prices fixed because shoppers are very price-sensitive. Small businesses, meanwhile, are reporting more challenges, and weakness is particularly notable among small firms serving the real estate sector. While the AI build-out is creating some price pressures, these should remain contained if policy is appropriately calibrated, she added.

Read more: How jobs, inflation, and the Fed are all related

The other possibility, Paulson said, is that current policy is not restrictive enough to bring inflation back down to 2%, stressing that it has been above target for more than five years, and even when stripping out temporary factors, measures of underlying inflation have edged down only modestly over the past year.

"Persistently elevated inflation suggests more restrictive policy may be needed," she said.

Paulson is looking for more months of improving inflation data in deciding whether to keep rates steady or take action.

"The incoming evidence will clarify which path we're on and what adjustments, if any, may be needed," she said.

In a 9-3 decision last Wednesday, the Fed held interest rates at the current range of 3.5% to 3.75%, but three regional Fed presidents — Cleveland Fed president Beth Hammack, Minneapolis Fed president Neel Kashkari, and Dallas Fed president Lorie Logan — dissented in favor of a quarter-point hike.

The Fed's favored inflation gauge showed prices edged down in June, though it remains uncomfortably above the central bank's 2% goal.

The Personal Consumption Expenditures index clocked in at 3.3% in June on a "core" basis, which excludes volatile food and energy prices. That's down a tenth of a percentage point from 3.4% in May. Month over month, core PCE increased 0.1%, down from 0.3% in May.

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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