Fed’s Paulson Expects US Three-Month Inflation To Reach 2% By The End of 2026

She said there is a decent chance that the U.S. will end the year with inflation that is close to 2 percent on a run-rate basis.

• She said 12-month inflation may still be a little elevated. 
• The data for January will be especially useful for gauging inflation because the beginning of the year is a natural time for firms to change prices, as per Paulson. 
• Paulson said the consumer market has already seen a lot of price adjustments.

Federal Reserve Bank of Philadelphia President Anna Paulson said she expects three-month inflation to come down to 2% by the end of 2026 and added that has “cautious optimism” towards inflation. 

“I am feeling cautiously optimistic on inflation, and I see a decent chance that we will end the year with inflation that is close to 2 percent on a run-rate basis; that is, 12-month inflation may still be a little elevated, but three-month inflation will be 2 percent by the end of the year,” she said in remarks prepared for an event with the Chamber of Commerce for Greater Philadelphia.

“I expect that we’ve already seen a lot of the price adjustments. That being said, producers may still have some more price changes to make,” she added. 

The data for January will be especially useful for gauging this because the beginning of the year is a natural time for firms to change prices, she said. 

Other Fed Officials Take

John Williams, President of the Federal Reserve Bank of New York, said on Monday that “the tariffs have already meaningfully increased U.S. prices of imported goods, although the full effects have likely not yet been felt.” 

Inflation is likely to peak sometime in the first half of 2026 as the full effects of tariffs are felt, he added. He estimated that the increase in tariffs to date has contributed around one half of a percentage point to the current inflation rate of about 2.75%.

Market Reaction

U.S. equities fell on Wednesday. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 0.62% in after-hours of trading. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

The Invesco QQQ Trust ETF (QQQ) was also down 0.2%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) declined 0.25% in after-market hours.

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