What was said—and why it landed now
Philadelphia Federal Reserve President Anna Paulson said additional US interest-rate cuts “could take a while,” arguing the central bank should wait for more clarity on inflation and growth after a year of significant easing. Reuters
Paulson spoke at the 2026 Allied Social Science Associations Annual Meeting, describing inflation as moderating and the labor market as stabilizing, while emphasizing that price pressures remain above the Fed’s 2% target. Reuters
Her remarks matter because they reinforce a policy message that has been building since the Fed’s late-2025 meetings: the central bank may be shifting from a cutting phase to a longer “hold and assess” stance, even if additional modest easing remains possible later in 2026. Reuters +1
Where policy stands after 2025’s cuts
Reuters reported the Fed cut rates by 75 basis points in 2025, bringing the target range to 3.50%–3.75%. Reuters
Paulson characterized policy as still slightly restrictive, a view consistent with the Fed’s desire to keep enough restraint in place to finish the job on inflation without unnecessarily damaging the labor market. Reuters +1
The next FOMC meeting is January 27–28, and investors have been leaning toward an unchanged decision at that meeting, reflecting uncertainty about how quickly inflation will converge to target and whether the labor market is cooling materially. Reuters
What the December debate revealed
Fed meeting minutes released in late December highlighted deep divisions among policymakers on the appropriate pace of further cuts, with officials weighing still-elevated inflation against signs of labor-market softening and the lagged effects of earlier tightening. Reuters
That split is also visible in the Fed’s own projections: in December, Reuters reported officials signaled only one cut in 2026 in their median outlook—more cautious than market pricing at times implied. Reuters
Market impact: rates, yields, and the 2026 “pivot risk”
Markets entered 2026 watching the Fed’s reaction function closely. On the first trading day of the year, Reuters noted 10-year Treasury yields around 4.191% as investors focused on the next policy steps and incoming data. Reuters
A “not soon” message can keep longer-dated yields supported and temper risk-taking in the most rate-sensitive corners of equities (notably high-duration growth), especially if upcoming jobs and inflation readings surprise to the upside.
At the same time, the policy outlook is complicated by leadership and politics. The Wall Street Journal noted that Chair Jerome Powell’s term ends in May and that President Donald Trump is in the process of selecting a successor—an additional variable for markets trying to price the medium-term policy path. The Wall Street Journal
What to watch next
1) The next data window
Reuters flagged that the data calendar was disrupted by a recent US government shutdown, with key releases returning to schedule in early January—inputs that could shape whether the Fed stays on hold through the first quarter. Reuters +1
2) “Later in the year” conditions
Paulson left the door open to modest cuts later in 2026 if inflation continues trending down and the labor market remains stable—implying a base case of patience rather than a rapid easing cycle. Reuters +1
3) The policy-disagreement distribution
With officials split on the terminal rate and the pace of easing, the dispersion of views—rather than the median dot—may become the more important signal for markets. Reuters has underscored that internal differences remain a defining feature of the Fed’s current setup. Reuters +1