Anna Paulson warns the September rate hike may not be the last, as underlying prices hold above target
Anna Paulson, president and chief executive officer of the Federal Reserve Bank of Philadelphia, said that additional interest rate increases may be necessary to bring inflation back to the central bank's 2% target.
Speaking at the 10th Annual Fintech Conference hosted by the Philadelphia Fed, Paulson assessed the economic landscape one week after the Federal Open Market Committee voted unanimously to raise the federal funds target range to 3.75%–4.00%, the first increase in more than three years.
The quarter-point hike was a meaningful policy shift. Whether it is the last is less certain.
"Looking ahead, if conditions evolve as I expect, some modest further tightening may be warranted," Paulson said in prepared remarks.
Inflation shows little sign of closing the gap
Paulson was direct about the challenge ahead. Underlying inflation — which strips out volatile swings from energy prices and tariffs to offer a cleaner read on price trends — remains in a range of 2.5% to 3%, well above the Fed's goal.
"The best I can say about underlying inflation this year is that it hasn't gotten worse," she told conference attendees.
She pointed to the artificial intelligence buildout as a structural driver of demand-side pressure that extends beyond geopolitical shocks. Import prices for computers and computer accessories have risen 24% over the past 12 months as AI-related investment ripples through electronics supply chains.
Paulson was unequivocal about the destination: "Returning inflation to 2 percent is non-negotiable."
The broader economy, she argued, offers the Fed room to act. The unemployment rate sits at 4.1%, a level she described as consistent with maximum employment.
Real consumption grew at an annualized rate of 3.4% in the second quarter of 2026, and the Atlanta Federal Reserve Bank's GDPNow model was pointing to above-4% growth in the third quarter.
The labor market has broadened, with total job gains averaging 74,000 per month over the summer.
Meanwhile, another Fed rate hike before the end of 2026 is a "reasonable" expectation, New York Federal Reserve President John Williams said Thursday, though he declined to say whether it will come in October.
Other officials have said similar things. Fed Governor Michael Barr said Wednesday that "further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion."
Boston Fed President Susan Collins has warned inflation may stay elevated well above target.
What the rate path means for mortgage origination
For loan officers and mortgage brokers, the implications are immediate.Core inflation reaching its highest level since 2023 anticipated exactly this scenario: a Fed that had no room to pause, let alone cut.
Mortgage rates have pushed past 7% for the first time in 20 months. That gives mortgage brokers a harder pitch just as the fall buying season gets underway.
The 30-year fixed-rate mortgage averaged 7.03% as of September 24, up from 6.95% a week earlier, according to Freddie Mac's Primary Mortgage Market Survey.
The benchmark last topped 7% on January 16, 2025, at 7.04%. A year ago, it stood at 6.30%.
Major brokerages, including Goldman Sachs and Bank of America, now expect at least one additional hike before year-end, with October emerging as the likely next date.
The Fed's September Summary of Economic Projections (SEP) puts the median year-end federal funds rate at approximately 4.1%.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
