In an interview with the WSJ, Philly Fed President Anna Paulson explicitly stated she is "comfortable holding interest rates steady" at the upcoming January 27-28 meeting. She also shares the prevailing view that there is no immediate hurry to cut again, something that's implied by the market with pricing at 40% through May.
She believes the current rate range ($3.50\% - 3.75\%$) is "slightly above a neutral level" and that maintaining restrictiveness for now is appropriate to finish the job on inflation.
She said she placing high importance on January price data (released next month) to see if businesses are resetting prices higher. Paulson noted that business owners tell her they are reluctant to raise prices due to fear of losing market share.
"The labor market could break quickly… So any sign of breaking versus bending is going to be something that I pay sharp attention to," she said.
Looking further out, she could favor cutting rates modestly later this year if inflation data validates her expectations or if the labor market weakens unexpectedly. If her baseline holds (declining inflation, stable growth), she believes policy should return to neutral, which is "a little lower than we are now. That's sounds relatively in line with the 50 bps in easing priced into the market.
If there's any notable takeaway, its her view that the labor market is weaker than it looks. She noted that 95% of private-sector job growth last year was in healthcare alone. That's a sobering statistic in an economy that's outwardly healthy.
Headlines:
Comfortable holding rates steady at Jan. meeting
No hurry to cut rates again; policy is slightly above neutral
Sees risks to labor market as 'a little bit higher' than inflation
Could favor cutting rates modestly later this year
Paying 'sharp attention' to labor market; says it could 'break quickly'
95% of private sector job growth last year was in healthcare alone
Supports Powell, says response to investigation was 'strong'
