"New Federal Reserve News Agency": Powell unexpectedly becomes a "folk hero," supported by this year's voting committee

Renowned financial journalist Nick Timiraos, known as the "new Fed correspondent," wrote that Federal Reserve Chairman Jerome Powell has become an unexpected "folk hero," with many memes circulating online praising his leadership of the Federal Reserve. Philadelphia Fed President Anna Paulson knows this because her 20-year-old son sends her these memes.

In an interview on Wednesday, Philadelphia Fed President Paulson stated, "Many people are impressed by his leadership, and I am one of them." This is Paulson's first interview with national media since taking office in July last year.

In his latest article, Timiraos mentioned that Powell disclosed on Sunday that he is under criminal investigation regarding renovations at the Federal Reserve's Washington headquarters, but he stated that the investigation actually concerns monetary policy and President Trump's desire to lower interest rates.

In response, Paulson said, "His statement is very powerful, and I think it is self-evident. Powell is a very effective chairman, as were his predecessors. For decades, the Federal Reserve has had very strong leadership, which I believe is beneficial for the American public."

Having previously served as the research director at the Chicago Fed, Paulson has been attending the Federal Reserve's interest rate-setting committee meetings since 2019. From this perspective, she finds it impressive that Powell can facilitate broad and open discussions. She said, "You need to create an environment where people can make decisions that are beneficial for both the institution and the economy. As chairman, part of the job is to navigate this process."

Timiraos pointed out that Paulson echoed the views of several of her Fed colleagues this week, who also endorsed Powell's integrity and leadership. At the end of last year, these Federal Reserve officials had disagreements on how to set interest rates, and Powell faced increasing opposition when pushing for rate cuts.

Currently, Paulson stated that she agrees with the mainstream view among markets and officials: there is no need to rush to cut rates again. She is a formal voting member of the rate-setting committee this year and supported the Federal Reserve's recent three meetings to lower the short-term benchmark interest rate, the most recent being in December, which reduced the rate range to 3.5%-3.75%.

Paulson indicated that she expects substantial progress in inflation returning to the Federal Reserve's 2% target by the end of this year; however, she is also open to maintaining interest rates at the upcoming meeting on January 27-28. She believes that current rates are still slightly above the "neutral level" that neither stimulates nor suppresses economic growth, which helps complete the final work of reducing inflation at this stage. "I hope the tightness of monetary policy can continue to work to bring inflation fully back to 2%." However, Paulson also stated that she might support a slight rate cut later this year: first, if inflation data confirms her judgment that price pressures are easing; second, if there are signs of unexpected deterioration in the labor market.

Paulson is particularly focused on the January price data to be released next month, as companies often readjust prices at the beginning of the year. In other words, if companies plan to raise prices significantly, it will soon be reflected in the data.

If her baseline judgment of steady economic growth, declining inflation, and a stable labor market holds, then we should be at a neutral level, and Paulson believes this interest rate level would be slightly lower than the current one.

Timiraos stated that Paulson's current view makes her lean dovish in the rate-setting committee, as she believes the risks facing the labor market are "slightly higher" than the risks of stubbornly high inflation.

Last year, about 95% of the new jobs in the U.S. private sector were concentrated in one industry—healthcare and social assistance. In this regard, Paulson stated that if an economy truly feels robust and healthy, it should not be creating jobs solely in one industry.

Paulson mentioned that research shows that during the current phase of labor market slowdown, while GDP-measured economic output remains strongly expanding, the signals from the labor market often prevail. However, Paulson also emphasized that past experiences do not guarantee future outcomes. For example, if the economy is on the brink of a productivity boom, economic activity may remain strong with less demand for labor.

Paulson indicated that the biggest economic surprise for her in 2025 is the extent of the cooling in the labor market, but this process has not accelerated, which is indeed unusual. She added, "The labor market could crack quickly. Therefore, any signs of a break rather than a bend would be signals I pay close attention to."

Paulson emphasized that it is crucial for the Federal Reserve to ensure inflation returns to the 2% target. However, compared to some of her colleagues, she has fewer concerns about the inflation outlook, as she sees signs that last year's surge in commodity prices may retreat this year. Business executives and owners indicate that they are more cautious about raising prices and losing customers than in previous years, as they are more focused on maintaining market share. "Demand is not strong enough to easily raise prices. Businesses are now very careful and very prudent."

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