Susan Collins, president of the Federal Reserve Bank of Boston, suggested a guarded stance toward additional interest rate cuts. She provided her perspective on the subject during her keynote speech at the National Association of Business Economics (NABE) economic policy conference in Washington, DC, March 30, 2023. Measuring success Collins focused on the uncertain economic environment and underscored the dual risk of inflation and the labor market.
Throughout her posted comments, Collins particularly stressed the high level of uncertainty in today’s climate. She noted that further cuts to policy rates this year could make sense, but future decisions will be very data dependent. She pointed out potential threats of “higher and more persistent inflation, more adverse labor market developments – or both,” which could complicate policymakers’ efforts to balance economic stability.
Collins, a voting member of the Federal Open Market Committee (FOMC) this year, supported the recent decision to reduce the benchmark borrowing rate by a quarter percentage point. She showed concern over any future rate increases, indicating that persistent inflationary pressures merit a patient stance.
“In my view, a bit of easing was appropriate to address the recent shift in the balance of risks to our inflation and employment mandate,” – Susan Collins
At the September FOMC meeting, Collins and her colleagues showed a surprising side. They were clear that there is a slim possibility for two more rate cuts before the year is out. Her comments indicate that she is in line with the market’s expectations for monetary policy changes. She said we have to be careful with how we move forward.
Collins addressed the employment landscape, stating, “Considering the outlook I described, I see the risks to employment as tilted to the downside and risks to inflation to the upside. It follows that both sides of our mandate are under pressure.” This feeling reflects broader concerns from the cloud of more than 20 economists who feared fragility in the labor market in the face of lingering inflationary fears.
Philip Jefferson, the newest permanent voter and member of the FOMC, supported the recent 25 bps rate cut. That didn’t stop him from sharing concrete advice on where to take policy in the future, right? His view is very much in line with Collins’ focus on keeping a do-no-harm moderately restrictive policy stance, looking to re-establish price stability.
“Still, with less scope for inflationary pressures from the labor market, the upside inflation risks I was concerned about a few months ago are more limited,” – Susan Collins
Both Collins and Jefferson’s remarks contribute to a broader conversation about the Federal Reserve’s approach to navigating an unpredictable economic landscape. They remain committed to monitoring incoming data and evolving market conditions. Their insights will serve as an invaluable guide for our future monetary policy adventures.