In an interview, Collins, a 2025 FOMC voting member and president of the Boston Fed, said that if inflation continues to decline and the labor market remains strong, the Federal Reserve may begin to relax interest rate restrictions.
Collins added that while the latest employment data came in below expectations, the U.S. labor market remains strong, and she warned that while inflation is returning to its 2% target, it is happening more slowly than expected.
Collins expects policy rates to be lower in the coming years. She said: "We will publish a new Summary of Economic Projections in September, which will include the outlook of the 19 members of the FOMC based on the data we have seen so far. It will include our outlook for interest rates at the end of 2024, 2025, and 2026."
However, she did not provide more specific details on the timing and pace of rate cuts. She said: "I do expect that we will see some easing in the next few years. But the magnitude, timing and speed of interest rate adjustments will be determined by the data."
Collins also said: "We will have more data before our September meeting, and I don't want to make a judgment in advance. The economy is growing at a pace that I think can sustain a solid labor market."
Collins said she has been a "realistic optimist" for about the past year and a half and believes there is a path to lowering inflation without causing an excessive slowdown in economic growth. “The Fed has made significant progress in lowering inflation, and it has done so while the labor market remains healthy,” she noted.
Collins believes that "monetary policy should be forward-looking, focusing on both price stability and maximum employment."
Asked whether the U.S. economy is heading for a recession, Collins pointed to last Friday’s July jobs report, which was softer than many expected, but she cautioned “not to put too much emphasis on any one or two late releases.”
She added: "The data is particularly important, but the data is also particularly noisy. There are other indicators that suggest that the labor market is in a relatively healthy state and consistent with inflation returning to target. For example, layoffs remain low."
Collins noted that while the unemployment rate has risen, its rise involves many factors, including an increase in the labor force participation rate and a continued increase in the number of immigrants.
“The risk of self-fulfilling negative sentiment is a big concern,” she warned. “So I think it’s important to talk about some of the data that shows solid performance, not just the indicators that might be worrisome.”
Article forwarded from: Jinshi Data
