Speaking in prepared remarks at a fintech conference in her district, she called recent inflation trends troubling and estimated underlying inflation is about 2.5% to 3%, "well above our 2% target, and the gap has shown little signs of closing." She added, "The best I can say about underlying inflation this year is that it hasn't gotten worse."
The comments followed the Federal Open Market Committee's move, one week earlier, to lift the benchmark rate by 0.25 percentage point to a 3.75% to 4% range.
Outside of prices, Paulson said economic output "has been solid" and the labor market is "holding steady." Markets, meanwhile, have pushed expectations for more tightening higher. Longer-duration Treasury yields climbed this week to levels last seen in 2004. According to the CME Group's FedWatch tool, traders assign a 64% probability to another hike in October and anticipate one more in January.
Fed funds futures imply a rate near 4.8% by the end of 2027, signaling the market anticipates up to four more quarter-point hikes. Also Thursday, New York Fed President John Williams said it is "reasonable" that there could be another increase before the year is over.
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Policy makers are still focused on inflation, and the market is leaning toward at least one more hike this year. That keeps attention on how changing rate expectations show up in everyday places like mortgages, credit cards, and yields on cash-like accounts. If you are tracking the economy at home, the signal is simple: keep an eye on the path of inflation and what the Fed hints at next, because both are steering where borrowing costs and savings rates settle.
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