By Michael S. Derby
NEW YORK (Reuters) – Boston-based 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 rate cuts.
“With an economy that is generally in a good place and policy already closer to a more neutral stance, I consider that the current nature of uncertainty calls for a gradual and patient approach to policymaking,” Collins said in the text of a speech prepared for an event in his bank.
The official said as the new year begins, “inflation is down significantly from its peak in 2022, and the data continues to point to a gradual, if bumpy, path back to the 2 per cent target the Fed.” He added that lower inflation had been achieved even as the jobs market “remained generally healthy” and rebalanced from overheated conditions.
Collins' comments came as central bankers began to weigh the state of the economy and the outlook for monetary policy following last month's Federal Open Market Committee meeting which saw officials cut their interest rate target range by a quarter of a percentage point to between 4.25%. and 4.5%. Officials also confirmed the number of cuts predicted for the new year amid the expectation that inflation will remain high for longer than expected.
Collins said she supported last month's cut but described it as a “close call” that “provides some additional insurance to preserve healthy labor market conditions while maintaining a restrictive policy stance that is still needed to sustainably restore price stability.”
Financial markets are debating whether the Fed will be able to deliver another rate cut at the policy meeting at the end of this month. Further complicating the outlook is the return of Donald Trump to the presidency, having campaigned on a platform of massive trade tariffs and deportations that many economists believe will further push inflation higher and make it harder to r Fed get price pressure back to 2%.
Collins also said “it is too early to tell how future policy changes by the new administration and Congress might influence the paths of inflation and economic activity.”
Collins did not offer any firm views on where she expects monetary policy to go, but said her broad views on rate policy and the economy were in line with the outlook released by the Fed at its meeting last month. .
Collins noted that Fed policy is not on a default path and is currently well positioned for what may come. She also said she now sees more consistent levels of inflation going forward compared to her recent views.
(Reporting by Michael S. Derby; Editing by Chizu Nomiyama)