Susan Collins, president of the Federal Reserve Bank of Boston, speaks during the National Association for Business Economics’ Economic Policy Conference in Washington, D.C., March 30, 2023.
Ting Shen | Bloomberg | Getty Images
Two Federal Reserve policymakers express support for maintaining high interest rates as the battle against excessive inflation continues.
In separate speeches, Governor Michelle Bowman and Boston Fed President Susan Collins emphasize the possibility of further rate hikes if economic data does not cooperate.
Bowman’s remarks are particularly pointed, indicating that progress in bringing inflation down to the Fed’s 2% target has been insufficient.
“I anticipate further rate hikes will likely be necessary to return inflation to 2% in a timely manner,” she stated in prepared remarks to a bankers group in Vail, Colorado.
With the majority of the Federal Open Market Committee (FOMC) expecting inflation to remain above target through at least 2025, and Bowman’s own expectation of slow progress, it “suggests that additional policy tightening will be required to reduce inflation in a sustainable and timely manner,” she added.
Collins, on the other hand, acknowledges encouraging recent inflation data, but cautions against premature celebration while core inflation excluding shelter costs remains high.
“I expect rates may need to stay higher and for longer than previous projections indicated, and further tightening is certainly a possibility,” Collins said in prepared remarks for a banking group in Maine. “Policymakers will remain committed to achieving the Fed’s mandate.”
These comments come two days after the FOMC decided not to raise rates following its two-day meeting, with both policymakers expressing support for the decision.
Both Bowman and Collins are FOMC voting members this year. The federal funds rate currently targets a range between 5.25% and 5.5%.
While opting not to raise rates, officials indicate they still anticipate one more increase this year, followed by potentially two cuts in 2024, each at 0.25 percentage points at a time.
“There are some promising signs that inflation is moderating and the economy is rebalancing,” Collins stated. “However, progress has not been linear and is not evenly distributed across sectors.”
She also noted that the impact of monetary policy measures, including 11 interest rate increases and a reduction of over $800 billion in the Fed’s bond holdings, may be taking longer to permeate the economy due to the strong cash positions of consumers and businesses.
Nevertheless, she highlighted that the path to a soft landing for the economy “has widened” and stated that Fed policy is “well positioned” to achieve a decrease in inflation without triggering a recession.
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