Paulson: Iran War Challenges Fed's Inflation Fight

Paulson, speaking at a San Francisco Fed event, highlighted that inflation has persistently exceeded the U.S. central bank’s 2% target despite "significant progress" in reducing price pressures. She noted that longer-run inflation expectations are "consistent" with the 2% goal but are "a little more fragile." Paulson explained that if inflation were at the 2% target, the Fed would feel more comfortable being patient with monetary policy, even with potential AI-driven productivity gains.

However, with inflation above 2% for an extended period, she stated the Fed "would be more cautious" and "inclined to weight the possibility of overheating more heavily in determining appropriate policy."