By Michael S. Derby
NEW YORK (Reuters) – Federal Reserve Bank of Boston President Susan Collins said on Thursday that significant uncertainty about the outlook required the central bank to proceed cautiously with future rate cuts.
“With the economy in a generally good place and policy close to neutral, I see the current state of uncertainty as calling for a more moderate and patient approach to policymaking,” Collins said in the text of the prepared speech. event at his bank.
The official said that as the new year begins, “inflation has fallen significantly from its 2022 peak, and data continues to point to a gradual, if uneven, return to the Fed's 2-point target.” He added that low inflation had been achieved as the labor market “remained healthy overall” and had re-adjusted to extremely hot conditions.
Collins' comments came as bankers began to review the economy and the outlook for monetary policy following last month's Open Market Committee meeting in which officials revised their benchmark interest rate quarterly to a mid-4.25% range. and 4.5%. Officials have pulled back on the number of cuts expected in the new year at a time when inflation is expected to remain higher for longer than expected.
Collins said he supported last month's cut but described it as a “close call” that “provided additional insurance to maintain healthy labor market conditions while maintaining the restrictive policy that is still needed to restore price stability on a sustained basis.”
Financial markets are actively debating whether the Fed will be able to deliver another rate cut at the policy meeting later this month. Further complicating the outlook is Donald Trump's return to the presidency, after campaigning on a platform of big trade tariffs and layoffs that many economists believe will perpetuate upward pressure on inflation and make it harder for the Fed to get interest rates back to 2%.
Collins also said that “it is too early to tell how future policy changes by the new administration and Congress may influence the path of inflation and economic activity.”
Collins did not give a firm view on where he expects monetary policy to go but said that his general views on rate policy and the economy are in line with the forecasts issued by the Fed at its meeting last month.
Collins noted that Fed policy is not on a pre-set path and is currently well positioned for what may come. He also said he now sees sticky levels of inflation going forward compared to his recent views.