Fed’s Collins: Reaching 2% inflation goal may take longer
Federal Reserve Bank of Boston President Susan Collins signaled interest rates will likely need to be held at a two-decade high for longer than previously thought to dampen demand and reduce price pressures.
Collins, who noted the lack of disinflationary progress made in 2024, said slower economic growth will be necessary to make sure inflation remains on a sustainable path to the Fed’s 2 percent goal. She did not offer an estimate on when rate cuts may happen.
“The recent upward surprises to activity and inflation suggest the likely need to keep policy at its current level until we have greater confidence that inflation is moving sustainably toward 2 percent,” Collins said Wednesday at the Massachusetts Institute of Technology.
“The recent data lead me to believe this will take more time than previously thought,” she said.
Collins’ comments echoed those of Fed Chair Jerome Powell, who said last week the central bank had more work to do to gain the necessary confidence in inflation returning to the 2 percent target in order to cut interest rates.
US central bankers left their benchmark rate unchanged last week at the highest level since 2001, where it’s been since July. Powell did not share when he thought the central bank would reduce rates.
The Boston Fed chief said it was unsurprising to see bumps in the disinflation process, such as the lack of progress in the first quarter. The Fed’s preferred inflation index rose 2.7 percent in March from a year earlier, a pickup from the 2.5 percent pace seen in February.
“The current situation requires methodical perseverance, recognizing that progress will take time and continue to be uneven,” she said.
In a moderated conversation following her remarks, Collins added, “I do think that holding in this restrictive range for longer will — in an orderly way in my baseline — would slow the economy.” (Bloomberg)