Philadelphia Fed's Anna Paulson said modest further tightening may be warranted if conditions evolve as expected; New York Fed's John Williams said another hike may be appropriate by year-end. The Fed's benchmark rate is 3.75%-4.00%, and July PCE inflation was 3.7%.
The Fed had raised its benchmark rate by a quarter-point just over a week before the remarks. Projections released the previous week indicated one more increase in 2026, while futures markets were braced for significantly more.
The report says much of July's 3.7% year-over-year PCE inflation was driven by aftershocks of President Donald Trump's trade tariffs and surging fuel costs from the U.S.-Israeli war with Iran. Cleveland Fed President Beth Hammack warned that prolonged inflation above 2% could make returning it to target more difficult and costly.
