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A senior Federal Reserve official raised concerns about further U.S. interest rate hikes, warning that the strength of the world’s largest economy means “we may have more work to do.”
Boston Fed President Susan Collins said in an interview with the Financial Times on Thursday that despite months of rising borrowing costs, the resilience of the economy – including a tight labor market and strong consumer spending – made her “feel surprise”.
“I haven’t seen a slowdown in the economy yet, and I think that’s going to be part of what we need to get back to a sustainable trajectory of 2% (inflation) within a reasonable period of time,” Collins said, adding, “Resilience really does show We may have more to do.”
The Boston Fed president also said the central bank needs to be patient as it considers further tightening of monetary policy.
Collins stressed that she has not yet made a decision on the upcoming September policy meeting, but repeatedly emphasized the benefits of taking steps and gathering “larger data sets to extract signals as we make decisions.”
The Fed’s aggressive tightening since March 2022, which has raised the federal funds rate from near zero to more than 5 percentage points, makes it “very well placed to be patient,” Collins said.
The president of the Boston Fed said the central bank may be close to, or has already reached, a “holding rate” level for interest rates. But she said that “doesn’t mean to me that it’s unlikely we’ll need to do some additional increments”.
Collins’ comments came as key officials from advanced and emerging economies arrived at the Kansas City Fed’s annual monetary policy meeting in Jackson Hole, Wyoming.
Also on hand is a widely-anticipated speech from Federal Reserve Chairman Jay Powell, who is scheduled to speak on the outlook on Friday at a critical time in the central bank’s historic push to fight inflation.
Price pressures have receded and the once-tight U.S. labor market is starting to soften, but clear signs that the economy remains strong have officials on edge.
That has cast doubt on how quickly inflation, which is still well above the Fed’s long-term 2 percent target, will slow from now on, and has sparked a bitter debate within the central bank over whether officials have so far acted sufficient measures to curb demand. .
Officials are also weighing a recent spike in U.S. borrowing costs, which has tightened financial conditions and which some economists say could have a significant impact on growth. Mortgage rates, along with real interest rates, or inflation-adjusted Treasury yields, have soared to their highest in more than a decade. All in all, this will likely reduce the need for further Fed tightening.
Collins, who joined the Fed about a year ago as the first black female leader of one of the Fed’s 12 regional banks, called the recent tightening of financial conditions “helpful” to the Fed’s goal of regulating demand and said “how the job is done part”.
While more and more officials seem increasingly skeptical about the need for a fed funds rate above 5 percent to continue tightening the economy, concerns about another rise in inflation have made top Fed officials hesitant — like Collins — to rule out more. Possibility of more rate hikes. It also forced officials to stress that when the Fed does finish raising rates, it will keep rates at what it calls “restrictive” levels for a while.
Collins said the rate cut was “sometime in the future” and not a “preset path”.
Asked whether the era of ultra-low interest rates following the global financial crisis was over, Collins said it was “possible” that so-called neutral interest rates — which neither stimulate nor dampen growth — rose in the wake of the coronavirus pandemic. illness, but said it was “too early to tell”.
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