Fed Board Member Anna Paulson announced that she supports two more 25 basis point interest rate cuts in 2025.
Paulson stated that caution should be exercised in the interest rate cut process, saying, “It is still not clear what the neutral interest rate is.”
Paulson stated that the Fed has reliable data sources despite the ongoing government shutdown. He called the September interest rate cut “reasonable,” adding that tariffs could put upward pressure on inflation but wouldn’t lead to a permanent increase.
Paulson, commenting on the labor market, stated that the labor market is still close to full employment, but that the trend is moving in the “wrong direction.” He maintained that long-term inflation expectations are “extraordinarily stable,” adding that the impact of tariffs on inflation has so far been below expectations.
The Fed official predicted that growth will remain close to its potential in 2026 and that inflation will cool over time. “Rising risks in the labor market should be the primary focus of monetary policy,” Paulson said.
Regarding the interest rate cut process, Paulson said, “I’m leaning toward gradually lowering interest rates throughout this year and next.” He noted that these gradual reductions would help keep the labor market close to full employment, and estimated that the breakeven level for monthly employment growth is now lower than in the past, likely below 75,000 per month.
In addition, Paulson added that the Fed will take action if inflation increases.
*This is not investment advice.