Federal Reserve Bank of Boston President Susan Collins said Friday while evidence is growing that inflation is easing, she’s not yet ready to rule out more rate hikes should they be needed.
“In order to get back down to 2% (inflation) in a reasonable amount of time you need to be patient and resolute, and I wouldn’t take additional firming off the table,” Collins said in a CNBC interview.
While there’s been “promising news” on the economic data front, the official said “I remain focused on really looking at kind of the full complement of information that we’re getting and making assessments in real time about the right thing to do.”
Collins spoke as financial markets have concluded the central bank is done with a rate rise campaign that took monetary policy from near zero rates in the spring of 2022 to its current level of between 5.25% and 5.5%.
At their policy meeting at the start of the month officials held rates steady, citing progress on getting inflation back to 2% coupled with tighter financial conditions which should help slow growth.
But they still kept alive the prospect of more action should it be needed.
That said, financial markets are already eyeing the possibility of Fed rate cuts next year.
In the interview, Collins argued for caution because when it comes to inflation, she said there’s been good but uneven news, while core price pressures are still too high relative to the Fed’s objective.
“I think we’re positioned to be patient” and “we are seeing that the work that we’ve done is feeding through the economy,” Collins said.
“The key point is we need to really stay the course, and we are seeing that the work that we’ve done is feeding through the economy,” the official said. The economy appears to be rebalancing toward a more sustainable profile, most notably in labor markets, but caution is warranted as the Fed is “far from declaring victory” over high inflation, she said.
Collins also tackled a recent easing in financial conditions that’s tied to declining bond yields, which in theory means markets are providing less restraint to the economy, which could increase pressure on the Fed to raise rates again.
Collins did not directly comment on the recent retreat in yields but did note “I am seeing evidence of the kind of restrictiveness that’s consistent with the orderly slowdown that we’re looking for to realign demand with supply and continue the inflation moderation that we need.”
In a research note Friday, forecasters at Deutsche Bank noted financial conditions had “ease considerably” over recent weeks, but concluded, “while the recent easing could produce a more hawkish Fed in theory, the Fed can afford to be less concerned with this easing given recent data showing progress on the labor market and inflation.”
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