Fed's Paulson: Iran War Adds Risks to Inflation and Growth
Philadelphia Federal Reserve President Anna Paulson said the Iran war creates new challenges for the US economy by adding risks to inflation and growth, but she did not directly direct the market to any imminent monetary policy changes. The statement was made in a speech for an event held by the San Francisco Fed on Friday (March 27).
Paulson emphasized that inflation has been above the Federal Reserve's 2% target for a long time, despite "significant progress" in easing price pressures. She assessed that long-term inflation expectations remain consistent with that target, but "perhaps a little more fragile," indicating greater sensitivity to new shocks.
In the policy context, Paulson highlighted the dilemma of potentially boosting the economy from an AI-driven productivity surge while inflation has not yet returned to 2%. If inflation is already at target, she would be more comfortable being patient and holding interest rates on hold while waiting to see whether accelerating growth adds to price pressures. However, when inflation remains above 2% and persists, she said she would be more cautious and tend to place greater weight on the risk of overheating in determining appropriate policy.
Markets will be monitoring whether the energy shock from the conflict lifts headline inflation and expectations, how quickly activity and consumption respond, and whether productivity data truly reflects an AI boost or temporary factors—three variables that will determine how tight the Fed needs to remain.
Source: Newsmaker.id
