Federal Reserve's Paulson: Monetary policy is restrictive; more focus on employment risks.

Philadelphia Federal Reserve President Henry Paulson said on Friday that her primary concern is the state of the labor market, and that the current monetary policy stance should help pull inflation back to the 2% target. She stated, "My current concerns about the weakness in the labor market remain slightly greater than my concerns about the upside risks to inflation," partly because "I think there is a good chance that inflation will gradually decline next year as the effects of tariffs fade." While Paulson did not provide specific forward guidance in her speech, she emphasized, "I still believe that monetary policy is in a somewhat restrictive position." This interest rate level, coupled with the cumulative effects of past tightening policies, should help inflation return to the 2% target. Paulson described the current labor market as "bending, but not yet breaking," and noted that "through the past three rate cuts totaling 75 basis points, we have provided some insurance against further deterioration in the labor market." Paulson pointed out that the situation will be clearer at the beginning of next year (when she will become a voting member of the FOMC), at which time she will have more information. (Jinshi)