Boston Fed leader still expects rate cuts
Says central bank may lower them later, make fewer
The Federal Reserve will likely cut interest rates this year even though progress in reducing inflation has stalled, according to Susan M. Collins, president of the Federal Reserve Bank of Boston.
But Fed officials may begin lowering rates later and make fewer cuts than Wall Street had expected, she said.
“Recent data suggest it may take more time than I had previously thought to gain greater confidence in inflation’s downward trajectory, before beginning to ease policy,” Collins said in remarks prepared for delivery on Thursday to the Economic Club of New York.
Collins’s comments come amid heightened uncertainty over the Fed’s plans.
In January forecasters expected the Fed to cut rates as many as six times for a total of 1.5 percentage points, beginning in March. But on Wednesday, the government said the Consumer Price Index rose at a 3.5 percent annual pace in March, up from 3.2 percent in the previous month. Driving the increase were continued increases in housing costs.
It was the third straight month of disappointing inflation data after sharp declines last year. Now, investors worry policy makers won’t act until September, and will reduce rates just twice.
Collins said her view on the timing of any drop in borrowing costs has shifted.
“Earlier this year, I was concerned about policy restrictiveness, given an apparent rise in labor market fragility,” she said, noting that hiring had become concentrated in just a few industries. “But recent payroll gains [and revisions to earlier data] ... point to a labor market that, while coming into better balance, is still robust.”
With the job market holding up, Collins said it makes sense to take a “more patient approach in deciding when to ease policy.”
Collins is not a voting member this year of the Fed’s ratesetting Open Market Committee but participates in all its deliberations.