MNI BRIEF: Fed's Paulson More Concerned About Jobs Than Prices

Philadelphia Fed President Anna Paulson said Friday job market weakness warrants slightly more concern than inflation, which is likely headed lower next year as the effects of tariffs pass through prices and restrictive interest rates continue to pull down price growth. 

"On net, I am still a little more concerned about labor market weakness than about upside risks to inflation. That’s partly because I see a decent chance that inflation will come down as we go through next year," she said in remarks prepared for the Delaware State Chamber of Commerce. Tariff effects should dissipate by mid-2026, leaving inflation around 2.5%. 

The FOMC lowered its benchmark overnight lending rate for a third straight meeting Wednesday to 3.5-3.75%. "I continue to see monetary policy as somewhat restrictive. This level of rates, together with the cumulative effect of past restrictiveness, should help bring inflation back to 2%."  

Hiring has slowed to just 60,000 a month over the past three months, and the U.S. labor market has become less dynamic, Paulson said. New jobs are concentrated in health care and social services and job finding rates are slowing, she noted. "The labor market is okay, but downside risks are elevated." (See: MNI INTERVIEW: Political Pressure On Fed Risks Inflation Spike)