Fed's Paulson (2026 voter) is comfortable holding rates steady at next Fed meeting; labour market risks a little bit higher than risks of sticky inflation

• “I want monetary policy restrictiveness to be playing a role to get us all the way back to 2%.”
• If her baseline outlook for steady growth, declining inflation and a stable labour market is right, “well, then we should be at neutral,” an interest-rate setting she thinks is “a little lower than we are now.”
• “The labor market could break quickly…. So any sign of breaking versus bending is going to be something that I pay sharp attention to.
• “It’s not like demand conditions are so strong that it’s easy to raise prices. Firms are being very careful, very thoughtful.”
• Thinks rates are still high enough that they are slightly above a neutral level that neither spurs nor slows growth, and said that was appropriate for the time being to help finish the job of bringing inflation down.
• She would be particularly focused on January price data, because businesses often reset prices at the beginning of the year.

Fed's Paulson indicates a preference for keeping rates steady at the next meeting, highlighting that risks in the labor market slightly outweigh those of persistent inflation. Her comments suggest that while she sees current rates as somewhat above neutral, they are necessary to continue the fight against inflation, especially with upcoming price resets expected in January that could impact economic stability.