Federal Reserve Bank of Boston President Susan Collins said Friday that while there is growing evidence that inflation is declining, she is not yet ready to rule out further rate increases if they become necessary.
“To get back down to 2% (inflation) in a reasonable period of time you have to be patient and determined, and I wouldn’t rule out further firming,” Collins said in an interview with CNBC.
While there has been “promising news” on the economic data front, the official said: “I remain focused on really looking at the full complement of information we’re getting and making real-time assessments about the right thing to do.”
Collins spoke as financial markets concluded that the central bank has ended a rate-hiking campaign that took monetary policy from near-zero rates in spring 2022 to its current level of between 5.25% and 5.5%. .
At their monetary policy meeting earlier this month, officials kept rates steady, citing progress in getting inflation back to 2% along with tighter financial conditions that should help slow growth.
But they still kept alive the prospect of taking further action if necessary.
That said, financial markets are already considering the possibility of the Federal Reserve cutting rates next year.
In the interview, Collins urged caution because, when it comes to inflation, he said there has been good but uneven news, while underlying price pressures remain too high relative to the Fed’s target.
“I think we’re in a position to be patient” and “we’re seeing that the work we’ve done is fueling the economy,” Collins said.
“The key point is that we really need to stay the course, and we are seeing that the work we have done is feeding through the economy,” the official said. The economy appears to be rebalancing toward a more sustainable profile, especially in labor markets, but caution is warranted as the Federal Reserve is “far from declaring victory” over high inflation, he said.
Collins also addressed a recent easing of financial conditions that is tied to falling bond yields, which in theory means markets are providing less moderation to the economy, which could increase pressure on the Federal Reserve to to raise rates again.
Collins did not comment directly on the recent pullback in yields, but did note: “I am seeing evidence of the type of tightening that is consistent with the orderly slowdown we are looking for to realign demand with supply and continue the moderation of inflation that we are looking for. need. “
In a research note on Friday, Deutsche Bank forecasters noted that financial conditions had “eased considerably” in recent weeks, but concluded that “while the recent easing could produce a more hawkish Fed in theory, the Fed may have the luxury of worrying less about this flexibility”. given recent data showing progress in the labor market and inflation.”
