The Federal Reserve Bank of Boston President Susan Collins said on Tuesday that the Fed may cut interest rates further as inflation shows signs of weakening.
“Further adjustments to policy may be needed,” Collins said in prepared remarks at a conference held at his bank.
Referring to the FED’s latest estimates, Collins noted that officials had anticipated a half-point rate cut by the end of the year at their September policy meeting. However, Collins emphasized that monetary policy remains flexible, saying, “Policy is not on a predetermined path and will be adjusted as the economy develops, and will remain carefully data-driven.”
Collins’ comments came after stronger-than-expected September hiring data that challenged expectations that the Fed could cut interest rates more than once. Last month, the Fed lowered its target range for overnight interest rates by 50 basis points to between 4.75% and 5%. The move was based on concerns about falling inflation and the labor market. But a recent strong jobs report has raised questions about the Fed’s approach and suggested it could be less aggressive in future rate cuts than initially anticipated.
Despite rising core inflation, Collins expressed growing confidence that inflation is gradually returning to the Fed’s 2% target. He described the labor market as “strong” and noted the low unemployment rate. “Recent data, including an unexpectedly strong September employment report, supports my assessment that the labor market is in a generally good place, neither too hot nor too cold,” he said.
Looking ahead, Collins said it was important to maintain the current health of the labor market, which he said depended on economic activity continuing to grow close to trend. “That’s my baseline view,” he added.
On wage increases, Collins acknowledged that these increases remain high, but said that rising productivity levels have helped prevent these wage increases from becoming a significant driver of inflation.
*This is not investment advice.