By Michael S. Derby
NEW YORK (Reuters) – Boston Federal Reserve President Susan Collins said on Thursday that considerable uncertainty over the outlook requires the central bank to tread carefully with future rate cuts.
“With a generally healthy economy and politics already closer to a more neutral position, 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 his bank.
The official said that as the new year begins, “inflation is down significantly from its 2022 peak, and data continues to point to a gradual, if uneven, return to the target of 2% of the Fed. She added that lower inflation was achieved even though the labor market “remained generally healthy” and rebalanced after overly hot conditions.
Collins’ remarks come as central bankers began weighing in on the state of the economy and the outlook for monetary policy following last month’s Federal Open Market Committee meeting, which saw the Officials cut their interest rate target range by a quarter of a percentage point to between 4.25%. and 4.5%. Officials also backed away from the number of cuts planned for the new year because inflation is expected to remain high for longer than expected.
Collins said she supported last month’s reduction, but described it as a “tight decision” that “provided additional assurance to preserve healthy labor market conditions while maintaining a restrictive policy that is still necessary to sustainably restore price stability.
Financial markets are actively debating the Fed’s ability to impose another rate cut at the policy meeting at the end of the month. Further complicating the outlook is Donald Trump’s return to the presidency, having campaigned on a program of massive tariffs and deportations that many economists believe will further push inflation higher and make it harder for the Fed to reduce price pressures to 2%.
Collins also said that “it is too early to tell how future policy changes from the new administration and Congress might influence the trajectories of inflation and economic activity.”
Collins gave no firm views on where she sees monetary policy heading, but said that overall her views on rate policy and the economy are consistent with forecasts released by the Fed during from its meeting last month.
Collins noted that Fed policy is not on a predefined trajectory and is currently well positioned for what may come. She also said she now expects higher inflation levels compared to her recent views.
