Federal Reserve’s Collins says now is the time for a patient, gradual approach to rate cuts Reuters
Michael S. Derby
NEW YORK (Reuters) – Boston Federal Reserve Bank President Susan Collins said on Thursday that significant uncertainty about the outlook called for the central bank to proceed cautiously with future interest rate cuts.
“With the economy generally in good shape and politics already closer to a more neutral stance, I see the current nature of uncertainty as a call for a gradual and patient approach to policymaking,” Collins said in a speech prepared for an event at her bank.
The official said that as the new year begins, “inflation is falling significantly from its 2022 peak, and data continue to point to a gradual, if uneven, path back to the Fed’s 2 percent target.” She added that the lower inflation was achieved even though the labor market “remained broadly healthy” and returned to balance after excessively hot conditions.
Collins’ remarks came as central bankers began assessing the state of the economy and the outlook for monetary policy following last month’s Federal Open Market Committee meeting, where officials cut their target range for interest rates by a quarter of a percentage point to between 4.25% and 4.5 percent. Officials also backed off on the number of cuts planned for the new year amid expectations that inflation will remain high longer than expected.
Collins said she supported last month’s cut but described it as a “close call” that “provided some additional insurance to preserve healthy labor market conditions while maintaining the restrictive policy stance still needed to sustainably restore price stability.”
Financial markets are actively debating whether the Fed will be able to offer another rate cut at its policy meeting later this month. Further complicating the outlook is the return to the presidency of Donald Trump, who campaigned on a platform of heavy trade tariffs and deportations that many economists believe will further increase inflation and make it harder for the Fed to return price pressures to 2%.
Collins also said it is “too early to say how future policy changes by the new administration and Congress might affect the trajectories of inflation and economic activity.”
Collins did not offer firm views on where she expects monetary policy to go, but said her overall views on interest rate policy and the economy were in line with forecasts released by the Fed at last month’s meeting.
Collins noted that Fed policy is not on a predetermined path and is currently well positioned for what may come. She also said she now sees tougher levels of inflation going forward compared to her recent views.
