Boston Federal Reserve Bank President Susan Collins said on Thursday that significant uncertainty about the economic outlook requires the central bank to move cautiously in cutting interest rates in the future.
“With the economy in overall good shape and policy already approaching a more neutral level, I see the current uncertainty as calling for a gradual and patient approach to policymaking,” Collins said in a prepared speech for an event at her bank.
She added that as the new year begins, “inflation has declined significantly from its peak in 2022, and data continue to point to a gradual, albeit uneven, return to the Federal Reserve’s 2 percent target.” She added that the lower inflation has come despite the job market “remaining broadly healthy” and rebalancing.
Collins’ remarks came as policymakers began assessing economic conditions and the outlook for monetary policy after last month’s Federal Open Market Committee meeting, which saw policymakers cut the target range for interest rates by a quarter point to between 4.25% and 4.5%. Policymakers also reduced the number of cuts expected for the new year amid expectations that inflation will remain elevated for longer than expected.
Collins said he supported last month’s rate cut but described it as a “difficult” decision that “provided some additional protection to maintain healthy labor market conditions while maintaining the tight policy stance, which is still needed to restore sustained price stability.”
Financial markets are actively debating whether the Fed will be able to make another rate cut at its policy meeting later this month. The situation has been further complicated by the return of Donald Trump to the presidency, with his campaign platform emphasizing massive trade tariffs and deportations that many economists believe will add to inflationary pressures and make it harder for the Fed to achieve its 2% target for stable prices.
Collins also said, “it is still too early to determine how policy changes by the new administration and Congress might affect the trajectory of inflation and economic activity.”
Collins did not offer a firm view on the direction of monetary policy but said that his overall view of interest rate policy and the economy was in line with the forecasts issued by the Fed at its meeting last month.
Collins stressed that Fed policy is not on a set path and is now well-positioned to weather whatever comes next. He also said that he now expects a stickier inflation outlook than he had recently viewed.
