Susan Collins, President of the Federal Reserve Bank of Boston, speaks during the National Association of Business Economics (NABE) Economic Policy Conference on Thursday, March 30, 2023 in Washington, DC, USA.
Ting Shen | Bloomberg | Getty Images
Boston Federal Reserve President Susan Collins expressed support for the latest interest rate cut on Tuesday but was somewhat skeptical about the extent of future moves as she sees ongoing threats from inflation.
Speaking in New York, the central bank policymaker noted that there are risks of both higher inflation and a weakening labor market that are keeping officials on their toes.
“In my view, some easing was appropriate to address the recent shift in the balance of risk to our inflation and employment mandate,” Collins said in prepared remarks. “But I still believe a mildly restrictive policy stance is appropriate as monetary policymakers work to restore price stability while limiting the risks of further labor market weakening.”
The “moderately restrictive” phrase has been used by officials to describe the current policy stance, which is curbing growth – and inflation – while monitoring slowing wage growth and a gradual increase in the unemployment rate.
As a voter this year on the Federal Open Market Committee, which sets interest rates, Collins noted an “extremely uncertain environment” that would bring “higher and more persistent inflation, less favorable labor market developments – or both.”
“Still, the inflation risks that I was worried about a few months ago are reduced as the scope for inflationary pressures from the labor market is smaller,” she added. “In this context, it might be appropriate to cut the key interest rate a little further this year – but the data has to show that.”
At the September meeting, Collins and her counterparts briefly suggested that two more rate cuts were likely this year, and that was reflected in market pricing.
Policymakers face challenges amid the impending government shutdown. The Labor Department has indicated it will stop collecting and releasing jobs data while the impasse continues, with the crucial nonfarm payrolls report due on Friday.
Fed Governor Philip Jefferson also said earlier in the day that he supported the FOMC’s decision in early September to cut its key interest rate by a quarter of a percentage point. Jefferson, a consistent FOMC voter, gave no indication of where he thinks the policy will go.
“Given the outlook I have outlined, I see the risks to employment tilted to the downside and the risks to inflation to the upside. It follows that both sides of our mandate are under pressure,” he said.
Market prices indicate that it is almost certain that the FOMC will approve another rate cut at its October meeting.
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