By Michael S. Derby
NEW YORK (Reuters) – Federal Reserve Bank of Boston President Susan Collins said Thursday that significant uncertainty over the outlook calls for the central bank moving forward cautiously with future rate cuts.
“With an economy that is in a good place overall and policy already closer to a more neutral stance, I view the current nature of uncertainty as calling for a gradual and patient approach to policymaking,” Collins said in the text of a speech prepared for an event at her bank.
The official said as the new year starts, “inflation is down significantly from its 2022 peak, and the data continue to point to a gradual, if uneven, trajectory back to the Fed’s 2 percent target.” She added lower inflation has been achieved even as the job market has “stayed healthy overall” and rebalanced from overly hot conditions.
Collins’ remarks came as central bankers have begun to weigh in on the state of the economy and the outlook for monetary policy following last month’s Federal Open Market Committee meeting that saw officials trim their interest rate target range by a quarter percentage point to between 4.25% and 4.5%. Officials also backed off on the number of cuts projected for the new year amid expectations inflation will stay high longer than expected.
Collins said she supported last month’s cut but described it a “close call” that “provided some additional insurance to preserve healthy labor market conditions while maintaining a restrictive policy stance that is still needed to sustainably restore price stability.”
Financial markets are actively debating whether the Fed will be able to deliver another rate cut at the policy meeting at the end of this month. Further complicating the outlook is the return of Donald Trump to the presidency, having campaigned on a platform of massive trade tariffs and deportations that many economists believe will further pressure inflation higher and make it harder for the Fed to get price pressures back to 2%.
Collins also said “it is too early to tell how future policy changes by the new administration and Congress might influence the trajectories of inflation and economic activity.”
Collins offered no firm views about where she expects monetary policy to go but said that broadly her views on rate policy and the economy were in alignment with the forecasts released by the Fed at its meeting last month.
Collins noted Fed policy is not on a preset path and that it is currently well positioned for what may come. She also said that she now sees stickier levels of inflation going forward relative to her recent views.