Boston Fed President Supports Keeping Interest Rates Elevated to Combat Inflation
Boston Fed President Susan Collins expressed her support for maintaining higher interest rates as the battle against inflation intensifies. As a voting member of the Federal Reserve’s rate-setting group this year, Collins believes that “further tightening is certainly not off the table.”
During a speech at the National Association of Business Economics (NABE) economic policy conference in Washington, D.C., Collins emphasized the importance of continued efforts to curb inflation. She spoke alongside Governor Michelle Bowman, who also expressed her support for keeping interest rates elevated.
Both policymakers highlighted the possibility of raising rates further if the economic data does not align with their expectations. Bowman particularly emphasized that progress in bringing inflation down to the Fed’s 2% target has been insufficient.
Bowman stated, “I continue to expect that further rate hikes will likely be needed to return inflation to 2% in a timely way.” She made these remarks during a speech to a bankers group in Vail, Colorado.
On the other hand, Collins acknowledged that recent inflation data has been encouraging, but cautioned against premature celebrations. While core inflation, excluding shelter costs, remains elevated, Collins believes that it is too soon to declare victory.
“I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table,” Collins said during a prepared speech for a banking group in Maine. She affirmed that policymakers would continue to work towards achieving the Fed’s mandate.
These comments from Bowman and Collins come just days after the Federal Open Market Committee (FOMC) decided not to raise interest rates during their two-day meeting. Both policymakers supported this decision.
As FOMC voting members, Bowman and Collins play a crucial role in determining the trajectory of interest rates. Currently, the federal funds rate is targeted in a range between 5.25% and 5.5%.
While the FOMC chose not to raise rates, they indicated that they foresee one more increase this year, followed by potentially two cuts in 2024. However, these changes would occur incrementally, at a rate of 0.25 percentage point at a time.
Collins acknowledged that there are some optimistic signs indicating a moderation of inflation and a rebalancing of the economy. However, she noted that progress has not been consistent across all sectors.
She also mentioned that the effects of previous monetary policy moves, including interest rate increases and a significant decrease in the Fed’s bond holdings, may be taking longer to impact the economy due to the strong financial positions of consumers and businesses.
Despite these challenges, Collins remains optimistic about achieving a soft landing for the economy. She believes that Fed policy is well-positioned to decrease inflation without pushing the economy into a recession.
As the battle against inflation persists, the support from influential policymakers like Collins and Bowman reinforces the commitment of the Federal Reserve to tackle this economic challenge head-on.