Philadelphia Fed President: "Possible Year-End Rate Cut... Early Stage of Productivity Surge Driven by AI" [American Economic Association 2026]

2026 American Economic Association Annual Meeting (ASSA)
"Inflation Expected to Ease and Annual Growth Rate Projected at 2% This Year"

Anna Paulson, President of the Federal Reserve Bank of Philadelphia, stated on January 3 (local time) that if the trend of easing inflation continues and the economy maintains moderate growth this year, there is room for a slight cut in the federal funds rate by the end of the year. She also expressed the view that artificial intelligence (AI) could drive productivity gains and contribute to economic growth.

Anna Paulson, President of the Federal Reserve Bank of Philadelphia. Photo by the Federal Reserve Bank of Philadelphia.

President Paulson attended the 2026 Annual Meeting of the American Economic Association (AEA), which opened in Philadelphia, Pennsylvania, and said, "Inflation is gradually easing, the labor market is stabilizing, and I expect the economic growth rate this year to be around 2%."

She noted, "The current federal funds rate (3.5-3.75% per annum) remains somewhat restrictive," and projected, "As the effects of monetary policy accumulate, it will help return inflation to the 2% target."

In particular, she described this year's inflation outlook as one of "cautious optimism," predicting that the impact of tariff increases will likely be limited to the goods sector and that the resulting upward pressure on prices will probably be temporary.

She also cited the gradual slowdown in service prices and housing inflation as positive signs. President Paulson said, "The rate of increase in housing costs fell from 5.1% year-on-year in September 2024 to 3.7% as of September 2025," and, considering new rental indicators, she expects further declines ahead. She added, "By year-end, the three-month short-term inflation rate could approach 2%."

However, she maintained a cautious stance regarding the labor market and outlook, saying more time is needed until the situation becomes clearer. She pointed out that while recent GDP growth has been stronger than expected, job growth is slowing, and the unemployment rate has edged up. President Paulson emphasized, "The labor market is clearly showing signs of slowing, but it is not at a stage of collapse."

President Paulson holds a voting right on federal funds rate decisions at the Federal Open Market Committee (FOMC) this year.

She also assessed that AI is contributing to productivity gains.

President Paulson explained, "We are seeing the early stages of a step-up in productivity growth driven by AI and regulatory easing," adding, "Initial AI investment has been concentrated in areas such as data centers, which do not require much labor." She continued, "As AI becomes fully integrated across the economy, we may see a strong phase of growth, even if it does not generate a large number of new jobs."