Philadelphia Federal Reserve Bank President Anna Paulson stated on Friday that unemployment poses a greater threat to the economy than inflation, signaling potential for additional interest rate cuts.

Speaking at an event in Delaware, the central bank official noted, "Part of my reasoning is that inflation is likely to decline significantly as we move into next year."

As a voting member of the Federal Open Market Committee (FOMC) for 2026, which sets interest rates, Paulson added that current monetary policy appears "slightly restrictive." This suggests further room for easing if labor market conditions weaken.

"The current interest rate level, combined with the cumulative effects of past tightening measures, should help bring inflation back to our 2% target," she said.

Paulson also emphasized monitoring economic growth drivers. Should productivity gains from artificial intelligence become a primary factor, it could provide the Fed with flexibility to avoid raising rates solely to combat inflation.