During an event at the Massachusetts Institute of Technology, Federal Reserve Bank of Boston President Susan Collins emphasized the importance of aligning demand with supply to achieve sustainable inflation levels. She stated that in order to bring inflation back to the central bank’s 2% target, the U.S. economy needs to cool off.
Regarding monetary policy, Collins mentioned that recent increases in activity and inflation suggest the need to maintain current policy levels until there is greater confidence in reaching the 2% inflation target. She also expressed her confidence that the Fed can achieve this goal with a healthy labor market, although it may take longer than initially expected.
Collins made these remarks after addressing strong inflation pressures during a recent Federal Open Market Committee meeting, which resulted in keeping the overnight target rate range between 5.25% and 5.5%. The persistence of these price pressures has created uncertainty around the potential for interest rate cuts, although many Fed officials have discussed this possibility. However, they have refrained from providing a specific timeline and have opted to monitor data for progress on reducing inflation.
Collins also noted that longer-term inflation expectations align with the Fed’s target and that recent productivity growth is unlikely to be a lasting trend. Additionally, she mentioned that employers are likely prepared to accommodate higher wage demands as policy decisions are based on a comprehensive assessment of various factors, emphasizing the need for a methodical approach to monetary policy.
