• Fed's Paulson says monetary policy still working to lower inflation

• Paulson expects inflation to moderate over 2026

• Fed could cut rates again in new year

Jan 3 (Reuters) - Federal Reserve Bank of Philadelphia President Anna Paulson said on Saturday that further central bank rate cuts could be some way off while officials take stock of the economy’s performance after an active campaign of easing last year.

"I see inflation moderating, the labor market stabilizing and growth coming in around 2 percent this year,” Paulson said in the text of a speech to be delivered before the 2026 Allied Social Science Associations Annual Meeting in Philadelphia. “If all of that happens, then some modest further adjustments to the funds rate would likely be appropriate later in the year,” the official said.

Paulson also said “I view the current level of the funds rate as still a little restrictive,” adding it is still working to lower inflation pressures.

Paulson will have a vote this year on the interest-rate setting Federal Open Market Committee. Last year the FOMC trimmed its interest rate target by three quarters of a percentage point in three separate 25 basis point moves, leaving the central bank’s interest rate target at between 3.5% and 3.75% at the December policy meeting.

Officials cut rates amid a tricky balancing act. They sought to keep policy creating enough headwinds to lower inflation, with rates also low enough to help buoy a weakening job market. As officials trimmed interest rates they also faced considerable pressure from President Donald Trump for more aggressive cuts, while a number of Fed officials did not want to ease at all with inflation still well above the 2% target.

At the December meeting, Fed Chair Jerome Powell provided little guidance about the timing of future rate cuts, although Fed forecasts show some sort of further easing for this year.

In her remarks, Paulson said she had “cautious optimism on inflation” and a desire for “greater clarity on what is pushing growth up and employment down.”

“I see a decent chance that we will end the year with inflation that is close to 2% on a run-rate basis” as tariff-related price adjustments are completed, the official said.

On the hiring front, “While the labor market is clearly bending, it is not breaking,” Paulson said. She added, “I see the broad deceleration in the labor market as stemming from both supply and demand factors” and the hiring situation merits close attention as the year moves forward.