Boston Fed president Susan Collins warned on Wednesday that it will take longer than previously anticipated to bring down inflation, signaling that interest rates need to remain at their current levels. In a speech at the Massachusetts Institute of Technology, Collins stated, “The recent data lead me to believe this will take more time than previously thought. There is no pre-set path for policy.”
Collins expressed concerns that improvements in supply chains that helped cool inflation last year may not continue, and slower economic growth will be necessary to reduce demand and inflation. Despite these challenges, she remains optimistic that inflation can be brought back to the Fed’s goal of 2% in a reasonable amount of time, as long as the job market remains healthy.
Other Fed officials have also indicated their support for maintaining current interest rates. New York Fed President John Williams emphasized the need to collect more data before making any changes, while Minneapolis Fed president Neel Kashkari suggested that rates may need to be held at current levels for an extended period.
The Fed’s interest rate-setting committee recently decided to keep its benchmark rate at a range of 5.25%-5.50%, citing a lack of progress towards the 2% inflation target. Collins views the current rate range as having a moderately restrictive impact on the economy, striking a balance between lowering rates too soon and waiting too long.
Before considering a rate cut, Collins is closely monitoring inflation trends in housing and services, as well as ensuring that short- and long-term inflation expectations remain stable. She emphasized the importance of a balanced job market with rising wages that are not inflationary.
Overall, Collins believes that companies are well positioned to handle faster wage growth without fueling inflation. However, she cautioned that the recent surge in productivity may be temporary, highlighting the importance of maintaining productivity to keep inflation in check.