"New Federal Reserve News Agency": Powell unexpectedly becomes a "folk hero," this year's voting members strongly support him.

Nick Timiraos, a well-known financial journalist known as the "New Fed Communicator," wrote that Federal Reserve Chairman Jerome Powell has become an unexpected "folk hero," with many memes circulating online praising his ability to steer the Fed. Philadelphia Fed President Anna Paulson knows this because her 20-year-old son sends her these memes.

Philadelphia Fed President Paulson said in an interview on Wednesday, "Many people are impressed by his leadership; I am one of them." This was Paulson's first national media interview since she took office last July.

Timiraos mentioned in his latest article that Powell revealed on Sunday he was under criminal investigation due to renovations at the Fed's Washington headquarters, but stated the investigation was actually about monetary policy and President Trump’s intent to lower interest rates.

On this, Paulson said, "His statement was very powerful, and I think it speaks for itself. Powell is a very effective chairman, as were his predecessors. For decades, the Fed has had very strong leadership, which I think is beneficial to the American people."

Having previously served as research director at the Chicago Fed, Paulson has attended Fed rate-setting committee meetings since 2019. From this perspective, she finds Powell’s ability to foster broad and open discussion impressive. She said: "You need to create an environment where people can make decisions that are good for the institution and the economy. As chairman, part of the job is to steer that process."

Timiraos noted that Paulson echoed the views of several Fed colleagues this week, who also endorsed Powell's integrity and leadership. At the end of last year, Fed officials differed on how to set interest rates, with increasingly strong opposition as Powell pushed for rate cuts.

Currently, Paulson said she agrees with mainstream views among markets and officials: there is no need to rush another rate cut. This year, she is a voting member of the rate-setting committee and supported the Fed’s recent three rate cuts, the latest being last December, lowering the target range to 3.5%-3.75%.

Paulson stated that by the end of this year, she expects substantial progress in bringing inflation back toward the Fed's 2% target; however, at the meeting scheduled for January 27-28, she is also open to keeping rates unchanged. She believes the current rate remains slightly above the “neutral level”—which neither stimulates nor restrains economic growth—and that this is helping complete the job of pressing inflation down. "I hope the tightness of monetary policy continues to work and brings inflation fully back to 2%."

However, Paulson also said that later this year she may support a small rate cut: first, if inflation data confirm her judgment that price pressures are easing; second, if there are signs of an unexpectedly deteriorating labor market.

Paulson is especially watching the January price data due next month, as companies often adjust prices at the start of the year. In other words, if firms plan sharp price hikes, that will soon show up in the data.

If her baseline view of steady economic growth, falling inflation, and a stable labor market proves correct, then we should be at the neutral level, and Paulson believes that rate to be slightly below the current level.

Timiraos said Paulson’s current view makes her relatively dovish on the rate-setting committee, as she sees labor market risks "slightly higher" than the risk of persistently high inflation.

Last year, about 95% of new private-sector jobs in the US were concentrated in one industry—healthcare and social assistance. Paulson said, if an economy truly feels robust and healthy, it shouldn’t be creating jobs in only one sector.

Paulson mentioned that research shows at times like this—when the labor market is cooling, but GDP-measured output remains strong—the signals from the labor market tend to dominate in the end. But Paulson also stressed that past experience can’t guarantee future outcomes. For example, if the economy is on the brink of a productivity boom, economic activity could remain strong with less demand for labor.

Paulson said the biggest economic surprise for her in 2025 was the degree of labor market cooling, yet the process hasn’t accelerated, which is very unusual. She added: “The labor market could crack quickly. So any signs of breaking rather than bending will be a high-alert signal for me.”

Paulson emphasized that it is crucial for the Fed to ensure inflation returns to the 2% target. However, compared to some colleagues, she is less concerned about the inflation outlook because she sees signs that last year’s increases in goods prices may reverse this year. Company executives and owners say they are more focused on maintaining market share than in previous years, making them more cautious about raising prices and losing customers. “Demand isn’t strong enough to hike prices easily. Businesses are now very careful and very prudent.”

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