• Federal Reserve Bank of Philadelphia President Anna Paulson argues tariffs are not translating into broad, persistent inflation, supporting a "look through" approach by monetary policy.
  • She favors two more quarter-point rate cuts in 2025, citing labor market softening as a greater concern than tariff-driven price pressures.
  • Paulson expects tariff impacts on inflation to diminish into 2026 as the economy adjusts, with growth near potential and inflation subsiding.

In a recent speech to the National Association for Business Economics, Federal Reserve Bank of Philadelphia President Anna Paulson signaled that while tariffs have raised some goods prices, she is not seeing them translate into widespread, lasting inflation. According to people familiar with her remarks, Paulson emphasized that monetary policy should largely "look through" these effects, framing tariffs as a supply-side shock rather than a driver of ongoing inflationary pressures.

Paulson, who became president of the Philadelphia Fed on July 1, 2025, and will be a voting FOMC member in 2026, highlighted that tariffs explain a significant share of 2025's elevated inflation but expects their impact to fade. She pointed to research from other regional Fed banks, such as a St. Louis Fed analysis finding tariffs contributed about 10.9% to headline PCE inflation over the 12 months ending August 2025, with only partial pass-through to consumer prices so far. "The pass-through of tariffs to prices is partial," Paulson noted, adding that competitive pressures and adjustment frictions are limiting broad price increases.

Her stance comes amid new and higher U.S. tariffs introduced in early 2025, which have placed trade policy at the center of macroeconomic debates. Paulson supports the Fed's recent 25 basis point rate cut in September 2025, saying it "made sense" given rising labor-market risks. She advocates for easing along the lines of the median SEP path, implying two further 25-bp cuts if data evolve as expected. "I'm more concerned about the labor market than inflation," Paulson said, citing rising unemployment and downside momentum in employment conditions.

Efforts to assess the broader implications have revealed that many firms are absorbing part of tariff costs rather than fully passing them to consumers, which helps limit price increases but compresses margins. Without a shift in this dynamic, businesses could face heightened pressure, though Paulson expects growth near potential in 2026 with inflation that rises and then subsides. She attributes current inflation moderation to anchored expectations and softer services and housing inflation, with tariffs mainly affecting some physical goods.

Looking ahead, Paulson anticipates short-term additional goods price increases as tariffs continue to feed through, but no self-reinforcing inflation spiral. By 2026, she projects tariff effects will diminish as firms adjust sourcing and supply chains, with inflation moving closer to target. Other Fed voices and research pieces in 2025 echo similar themes, emphasizing that tariff impacts are significant but transitory, with limited justification for aggressively tighter policy in response.

In a brief update, Paulson's office clarified that her comments reflect ongoing analysis and may be revised as new data emerges, underscoring the fluid nature of economic forecasting amid tariff uncertainties.