During an event at the Massachusetts Institute of Technology, Federal Reserve Bank of Boston President Susan Collins stated that in order to achieve sustainable inflation levels, the U.S. economy needs to cool off. She emphasized the importance of aligning demand with supply, which would help bring inflation back to the central bank’s 2% target.
Regarding monetary policy, Collins mentioned that recent increases in activity and inflation suggest that the Fed should maintain current policy levels until there is greater confidence in reaching the 2% inflation target. These comments were her first since the Federal Open Market Committee meeting last week, where the committee decided to keep the overnight target rate range between 5.25% and 5.5% as they address strong inflation pressures.
The persistence of these price pressures has created uncertainty around the potential for interest rate cuts. While many Fed officials have discussed the possibility of easing rates, they have refrained from providing a specific timeline, opting to monitor data for progress on reducing inflation. Collins expressed her confidence that the Fed can achieve the 2% inflation goal with a healthy labor market, although she acknowledged that it may take longer than initially expected.
In addition, Collins mentioned that longer-term inflation expectations align with the Fed’s target and that recent increases in productivity are unlikely to be a lasting trend. She also noted that employers are likely prepared to accommodate higher wage demands. As policy decisions are based on a comprehensive assessment of various factors, Collins emphasized the need for a methodical approach to monetary policy.
Overall, Susan Collins emphasizes that aligning demand with supply is crucial for achieving sustainable inflation levels and achieving the Fed’s 2% target. The Fed should maintain its current policy levels until there is greater confidence in reaching this goal while monitoring data for progress on reducing inflation before considering interest rate cuts.