00:00Well, you want a reaction function? We are getting it, not necessarily from Kevin Warsh,
00:04the chairman, but Anna Paulson, the president of the Philadelphia Fed, is out with an essay
00:09this morning explaining what she thinks of the economy. She's still in the hold camp,
00:14but she is growing more concerned, citing subdued wage growth, elevated mortgage rates,
00:19and muted housing markets. All of this information, she says, points to current policy being mildly
00:25restrictive. The other possibility, however, is that current policy is not restricted enough
00:30to deliver our target rate of 2 percent inflation. The most compelling evidence for this view is
00:36straightforward. Inflation has been above the target for more than five years. Persistently
00:41elevated inflation suggests more restrictive policy may be needed. She says stripping out tariffs and
00:47energy, Paulson sees underlying inflation somewhere between 2.4 and 2.8 percent, and that is the metric
00:54that she is using. If you want the reaction function, she wants to see months, plural,
00:59of improving inflation data and signs that pressures from tariffs, energy, and AI are contained.
01:06If instead underlying inflation remains stubbornly elevated, the passage of time without progress
01:12would itself signal that more restrictive policy is needed. She wants to see months of declining
01:18inflation, and we will get two inflation reports before the next Fed meeting, so she could be lined up
01:23if we don't see declines, to vote yes for a rate increase.
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