By Jessica Coacci

Philadelphia Fed President Anna Paulson said monetary policy credibility is key for both lowering inflation and creating conditions that allow the economy to flourish.

In a speech addressing the implications for artificial intelligence on the economy and its impact on monetary policy, Paulson said Friday the path of policy will be determined based on where the Federal Reserve is in getting inflation back to its 2% target.

If there is a surge in growth that was productivity-driven, or that reflects AI-enabled efficiency gains, Paulson said monetary policy does not need to be adjusted. If that isn't the case and policy stays on hold, inflationary pressures may rise.

"If inflation is above 2 percent and has been for some time, I would be more cautious," according to a published text of her remarks.

Paulson said her current estimate of the neutral rate, the rate at which policy neither slows down or speeds up the economy, is close to the Summary of Economic Projections median of 3.1%.

"I could see that number being revised up, or possibly even down, as we get more data and learn more about how AI adoption and other forces are shaping longer-term productivity," she said.

When discussing the previous technological productivity boom of the 1990s under former Fed Chair Alan Greenspan driven by a surge in information technology investment, Paulson said the credibility the Fed had at the time gave the committee more room to hold rates steady.

Paulson said the central bank is in a different position today as inflation has hovered over 2% for six years. She added that long-term inflation expectations, while consistent with 2%, may be more fragile.

"Of course, the conflict in the Middle East has created new risks to both inflation and growth," she said.

When discussing AI's impact on the economy, Paulson said any trends in labor market momentum and wage growth can provide valuable signals about the extent to which a surge in growth is creating inflationary pressures.

"For example, I see no signs that the labor market is contributing to inflation today," she said.

Paulson is a voting member of the Federal Open Market Committee in 2026.

Write to Jessica Coacci at jessica.coacci@wsj.com


(END) Dow Jones Newswires

03-27-26 1218ET