Federal Reserve (Fed) Bank of Philadelphia Governor Anna Paulson delivered a speech at the Federal Reserve Bank of Philadelphia's 81st Annual Field Meeting Capstone.

Key quotes

Fed will move more aggressively if inflation landscape worsens.

Further ‘gradual’ rate hikes appropriate given high inflation.
Exact path of rate policy depends on how economy evolves.
Monetary policy needs to be ‘somewhat restrictive’.
Gradual rate hikes have also given fed officials space to gauge impact.
Gradual rate hikes have given economy time to adjust.
Data showed inflation remains a problem.
Has supported fed’s recent rate decisions
Underlying inflation stuck between 2.5% and 3%.
Fed has ‘more work to do’ to lower inflation.
Economy stronger than expected, job market robust and stable.
AI and energy impact on inflation hard to gauge risks to inflation outlook are high.

Market reaction

The US Dollar Index (DXY) is consolidating hot Consumer Price Index (CPI)-inspired gains near 102.25, as of writing.

Fed’s Paulson leans hawkish as inflation risks keep rate hikes in play

Fed’s Paulson delivered a distinctly hawkish message, with the FXS Speechtracker score at 8.1/10, above the 7.6/10 historical average, underscoring a tougher stance relative to the established baseline. The emphasis that the Fed “will move more aggressively if inflation landscape worsens,” alongside support for further “gradual” rate hikes and the need for “somewhat restrictive” policy, signals a clear bias toward additional tightening while keeping optionality for faster action. Persistent underlying inflation stuck between 2.5% and 3%, a stronger-than-expected economy, and high inflation risks reinforce the message that the Fed has “more work to do,” a combination that is typically supportive for the Dollar and a headwind for risk-sensitive FX.

The FXS Fed Sentiment Index was unchanged on the day, with a 0.00-point move leaving the index at a still-elevated 145.28, confirming that the broader Fed communication backdrop remains firmly hawkish. The steady index reading, despite an above-baseline FXS Speechtracker score for Paulson, suggests markets had largely priced in a restrictive stance, but the high level keeps upside pressure on the Dollar versus lower-yielding peers.

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.