Written by Michael S. Derby
NEW YORK (Reuters) – Boston Federal Reserve President Susan Collins said on Thursday that high uncertainty about the outlook calls 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 argue that the current nature of uncertainty calls for a gradual and patient approach to policy making,” Collins said in a text prepared for the meeting. It happened at her bank.
As the new year begins, “inflation has declined significantly from its peak in 2022, and data continues to point to a gradual, if uneven, path toward the Fed's 2 percent target,” the official said. She added that lower inflation was achieved even as the labor market remained “generally healthy” and rebalancing from overheated conditions.
Collins' comments came as central bankers began weighing in on the state of the economy and the outlook for monetary policy following a Federal Open Market Committee meeting last month that saw officials trim the interest rate target range by a quarter of a percentage point to between 4.25%. And 4.5%. Officials also scaled back the number of cuts expected for the new year amid expectations that inflation will remain high for longer than expected.
Collins said she supported last month's cut but called it a “close call” that “provides some additional insurance to maintain healthy labor market conditions while maintaining the restrictive policy stance that is still needed to restore price stability sustainably.”
Financial markets are actively discussing whether the Fed will be able to cut interest rates again at its policy meeting scheduled for the end of this month. Further complicating the outlook is the return of Donald Trump to the presidency, having campaigned on a program of massive trade tariffs and deportations that many economists believe will increase pressure on inflation and make it difficult for the Fed to return price pressures to 2%.
Collins also said: “It is too early to know how future policy changes by the new administration and Congress may impact trajectories of inflation and economic activity.”
Collins did not offer any firm views on where she expects monetary policy to go, but she said her views generally on interest rate policy and the economy are in line with forecasts issued by the Federal Reserve at its meeting last month.
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 more stable inflation levels moving forward compared to her last views.
