Philadelphia Federal Reserve President Anna Paulson said the Fed may need to raise interest rates further to combat persistent inflation, which remains around 2.5%-3%, well above the 2% target. She indicated that modest additional rate tightening may be warranted if economic conditions evolve as expected, while economic output remains solid and the labor market is holding steady.
Treasury yields are rising as investors price in persistent inflation above the Fed's 2% target, energy prices, and AI-driven debt issuance, creating a dilemma for policymakers. Fed officials are reconsidering whether inflation shocks are temporary and markets now expect multiple rate hikes in late 2024 and 2025, though some officials counsel restraint and caution against locking in pre-set guidance.