Fed Collins says policymakers may ‘proceed with caution’ on future rate hikes

Federal Reserve Bank of Boston President Susan Collins stands behind the Jackson Lake Lodge in Jackson Hole, Wyoming, where the Kansas City Fed will hold its annual economic symposium on Aug. 24, 2023.

On Sapphire | Reuters

Boston Federal Reserve President Susan Collins on Wednesday advocated a more patient approach to policymaking, while saying more evidence is needed to be confident that inflation is under control.

In comments that echoed the sentiment of other key central bankers, Collins said the Fed may be “close to or even at the peak” of interest rates.

However, he noted that further increments may be required depending on how the data pans out from here.

“Overall, we are well-positioned to act cautiously in this uncertain economic environment, with the flexibility to recognize risks while remaining firm and data-driven, and to adjust to conditions,” Collins said in a speech in Boston.

Those sentiments echo recent statements from Fed Chair Jerome Powell and Governor Christopher Waller. Both advocated a patient approach, while viewing recent positive developments in inflation with caution and prepared to approve additional rate hikes if necessary.

In a CNBC interview on Tuesday, Waller argued that he could “proceed cautiously” on federal policy, while noting that he had “been burned twice before” on inflation.

In his speech, Collins also noted some good news on inflation, as the central bank’s preferred measure rose just 0.2% in July, while wage growth slowed.

However, he cautioned that “it is difficult to extract the signal from the noise in the data.” If progress is rapid, “further tightening may be warranted,” he said.

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“There are promising developments, but given the continued strength of demand, my view is that it is too early to take recent developments as evidence that inflation is on a sustained path to 2%,” said Collins, who did not vote. A member this year of the rate-setting Federal Open Market Committee. Collins will be up for re-election in 2025.

Collins also talked about the expected setbacks to Fed policy action.

In general, economists believe that it will take a year to a year and a half for rate hikes to hit the economy. However, Collins said Covid-related factors and the general strength of household and corporate balance sheets could extend those setbacks, calling for more caution in policy.

“The target is an orderly slowdown that better aligns demand with supply, which is essential to ensure that inflation remains on a sustainable path towards the target,” he said.

Market pricing points to a strong possibility that the central bank will not raise rates at its September 19-20 policy meeting, According to CME Group data. However, it is Oct. 31-Nov. 1, traders assign a 43% probability of one last increase.

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