Philadelphia Federal Reserve Bank President Anna Paulson indicated that additional interest rate increases may be necessary to ensure inflation returns to the central bank's 2% target.
"Looking ahead, if conditions evolve as I expect, further modest policy tightening may be appropriate," Paulson said Thursday in prepared remarks for an event in Philadelphia.
Fed officials unanimously voted last week to raise the benchmark rate to a range of 3.75%-4%, the first hike since 2023.
Paulson, who holds a monetary policy vote this year, said the increase was necessary because underlying inflation measures excluding energy and food prices remain "stubbornly elevated."
"This adjustment brings policy closer to the level I believe is needed to pull inflation back to 2% while balancing risks to both inflation and the labor market," she said.
Paulson said the U.S. economy continues to show resilience in the face of shocks, with solid output growth and a labor market near full employment.
She said she sees signs of "building momentum" in the economy.
While the impact of tariffs on consumer prices has diminished, Middle East conflicts and AI-related data center construction have added upward pressure on prices.
On the other hand, she said wage growth remains moderate, suggesting labor costs are not adding to inflationary pressure.
"For underlying inflation this year, the most I can say is that it has not worsened," Paulson said. "Against this backdrop, the risk of sustained high inflation has risen."
Paulson said underlying inflation has shown little sign of improvement.
She said the relevant measures are currently in the 2.5%-3% range, showing almost no indication of moving back toward the Fed's target.
Since last week's rate hike, several Fed officials have said more action is still needed to bring inflation back to the 2% goal.
According to the latest economic projections, most officials still expect another 25 basis point hike this year, while eight policymakers anticipate an additional 25 basis point increase in 2027.