NEW YORK—Federal Reserve Bank of Boston President Susan Collins said Thursday that significant uncertainty over the outlook calls for the central bank to proceed 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.
As the new year starts, the official said, “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 discuss the state of the economy and the outlook for monetary policy following last month’s Federal Open Market Committee meeting. At that meeting, officials trimmed 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 that 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 restore price stability sustainably.”
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 the direction of monetary policy but said that her views on rate policy and the economy broadly aligned with the forecasts released by the Fed at its meeting last month.
Collins noted that Fed policy is not on a preset path and is currently well-positioned for the future. She also said that she now sees stickier inflation levels going forward relative to her recent views.
