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2025-12-12 21:03:05
[The Fed's "Double Narrative": Cutting Rates to Protect Jobs, Saying Policy Remains Tight] ⑴ Philadelphia Fed President Paulson stated clearly on Friday that she is currently more concerned about the risks of a weakening labor market than the upside risks of inflation, and believes that this week's rate cut provides some protection against a deterioration in the job market. ⑵ On inflation, Paulson believes that the current federal funds rate level of 3.5% to 3.75%, coupled with the cumulative effect of previous tightening policies, means that monetary policy is "slightly tight" and should continue to suppress inflation. ⑶ She is relatively optimistic about a future slowdown in inflation, believing that the high inflation in 2025 is "mostly" driven by trade tariffs, and that inflation is "very likely" to decline next year as the impact of tariffs weakens. ⑷ Paulson described the current state of the labor market as "bending, but not yet collapsing," and pointed out that the Fed will have more information at the January FOMC meeting, allowing for a clearer assessment of the outlook and risks. (5) Her remarks outlined the dual logic behind the Fed’s current decisions: on the one hand, it uses preventative interest rate cuts to hedge against downside risks to the economy and employment, and on the other hand, it emphasizes that the policy stance remains tight in order to maintain its credibility in combating inflation, attempting to strike a balance between the two.
