Philadelphia Fed’s Paulson Admits Sixth Straight Miss on Inflation Target

Anna Paulson, President and CEO of the Federal Reserve Bank of Philadelphia, delivered opening remarks at the 10th Annual Fintech Conference in Philadelphia on September 24th, noting explicitly that her views are her own, “not necessarily those of the Federal Reserve System or the Federal Open Market Committee (FOMC).” Paulson said she supported the FOMC’s 25 basis point rate hike from last week, but suggested “some modest further tightening may be warranted,” a comment implying the fight against inflation remains unfinished despite years of policy action. Most notably, she acknowledged that this marks the sixth consecutive year at this same annual conference where inflation has remained above the Fed’s 2 percent target, a tacit admission of a prolonged policy shortfall.

Paulson described underlying inflation, which strips out what she called temporary shocks from tariffs and oil prices, as running between 2.5 and 3 percent. Her assessment of progress on that front was notably restrained: “The best I can say about underlying inflation this year is that it hasn’t gotten worse.” She went on to identify the artificial intelligence investment boom as a direct source of price pressure, stating that “the impact of AI on productivity remains unclear, its effect on prices is not.” She pointed to import prices for computers and computer accessories rising 24 percent over the trailing 12 months, tying the increase to AI-driven demand moving through the electronics supply chain “from circuit boards to capacitors.”

On the labor market, Paulson noted unemployment fell from 4.3 percent in January to 4.1 percent by the time of her speech, a level she characterized as consistent with maximum employment. Job growth averaged 74,000 per month over the summer, with hiring broadening beyond the healthcare and social assistance sectors that had previously carried much of the labor market’s gains. Meanwhile, real consumption growth accelerated to an annualized 3.4 percent in the second quarter, and the Atlanta Fed’s GDPNow model pointed to more than 4 percent consumption growth for the third quarter. Paulson noted this sits oddly alongside weak consumer sentiment, attributing the gap partly to households drawing on stock market gains to fund spending unevenly across income levels.

Paulson also acknowledged that tariff-related price pressures have eased, only to be replaced by new ones stemming from the conflict in the Middle East and the AI buildout, suggesting inflation is shifting sources rather than genuinely retreating. She stated plainly that “inflation has been too high for too long,” even as she described the Fed’s current tightening as only “modest.” Peter Schiff, responding to the FOMC’s rate decision last week, argued that such incremental moves are insufficient, saying “a 25 basis point rate hike is nothing, even if they follow it up with another one in December, it is much too little too late to derail the inflation train.” He added that “interest rates have been too low for too long. And that’s not a coincidence.”

Paulson closed her remarks by declaring that “returning inflation to 2 percent is non-negotiable,” language that, after six straight years of missed targets, leaves open the question of how much longer that goal will remain out of reach.