By Michael S. Derby
Aug 4 (Reuters) – Federal Reserve Bank of Philadelphia President Anna Paulson said Tuesday she was keeping an “open mind” about what lies ahead for monetary policy in an outlook that could call for higher rates.
“The recent improvement in some inflation data is welcome” and “it is a step in the right direction, but it is only one step,” the official said in a statement from her bank.
When it comes to what the central bank will do next with monetary policy in the current environment, Paulson said: “I am committed to keeping an open mind as I assess the evidence and determine the appropriate path for policy.”
“My highest priority is delivering 2 percent inflation while sustaining full employment,” she added.
It was her first public comment since last week’s interest-rate-setting Federal Open Market Committee meeting.
Officials then held their overnight interest rate target range steady at between 3.5% and 3.75% amid inflation pressures that remain well above the Fed’s 2% target. Paulson said she supported the Fed’s call to hold its target rate steady.
The persistence of inflation above target helped drive three officials to dissent and vote in favor of a rate hike.
Fed Chairman Kevin Warsh, in a press conference following the Fed’s meeting, declined to provide guidance on where he thinks monetary policy should be heading.
In her statement, Paulson said the data suggests Fed policy is putting some restraint on the economy and that she will be watching the data to help her form her decision on monetary policy.
“If policy is appropriately calibrated, I would expect to see growing signs that inflation is coming down,” Paulson said, adding, “if instead underlying inflation remains stubbornly elevated, the passage of time without progress would itself signal that more restrictive policy is needed.”
Paulson said the job market has stabilized and inflation is “too high.”
On the energy front, “oil prices have since jumped and remain volatile, but the brief period of Middle East stability demonstrated that supply shocks can be temporary, reinforcing the case for looking through such disruptions when setting monetary policy.”
The official said that underlying inflation is around 2.4% to 2.8%, noting this type of price pressure “has been elevated for a long time, and it is what I am most focused on as I evaluate our progress toward the 2 percent target.”
(Reporting by Michael S. Derby; Editing by Andrew Heavens)
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