MNI BRIEF: Paulson Sees Modest Further Fed Cuts Later In Year

Cautious optimism on U.S. inflation and a stabilizing labor market underpin a "pretty benign" baseline outlook, Federal Reserve Bank of Philadelphia President Anna Paulson said Wednesday, repeating her view that "some modest further adjustments" to rates could happen later in the year.

"I see inflation moderating, the labor market stabilizing and growth coming in around 2% this year. If all of that happens, then some modest further adjustments to the funds rate would likely be appropriate later in the year," she said in remarks prepared for the Chamber of Commerce for Greater Philadelphia. 

She made no specific reference to the December CPI report, but again said progress on underlying inflation is likely to continue. Having "no evidence" that tariff-induced price increases are leading to broader inflation, and with long-term inflation expectations well anchored and "somewhat elevated" labor market risks, economic developments argue against tighter monetary policy, she said. "I view the current level of the federal funds rate as still a little restrictive. So, the combination of past and current monetary policy restrictiveness will help to bring inflation all the way to two." (See: MNI INTERVIEW: Musalem Warns Easy Fed Policy 'Unadvisable')