While inflation has dropped significantly from its highs last year, it’s too early to tell whether the Federal Reserve has finished its work in boosting interest rates—and they may even need to be hiked again, a top Fed official said.
- Boston Federal Reserve President Susan M. Collins said in a speech Wednesday that it’s too early to tell whether the Fed can stop raising interest rates.
- Collins said the Fed’s aggressive 18-month rate-hike campaign needed more time to work, citing key data that showed inflation may be returning.
- Collins spoke ahead of the Federal Open Markets Committee (FOMC) meeting scheduled for Sept. 19-20 where the next fed funds rate will be determined.
- The Boston Fed President said recent data showed the Fed rate hikes still haven’t caught up to the market because of a lag effect from being started when the economy was strong.
In a speech delivered Wednesday morning, Boston Federal Reserve President Susan M. Collins said that the Fed’s aggressive 18-month rate-hike campaign needed more time to work, citing key data that showed inflation may be returning, and that rates may need to stay higher for longer.
The Federal Open Markets Committee (FOMC) will vote on the federal funds interest rate at its next meeting on Sept. 19-20, though Collins is a non-voting member this year as part of a rotation of regional Fed bank presidents.
While Collins said she expected the Fed to hold rates at its current 5.25% – 5.5% levels “for some time,” if inflation isn’t brought under control, she said it could force the Fed to raise rates again at future meetings.
“And while we may be near, or even at, the peak, further tightening could be warranted, depending on incoming data,” said Collins, who pointed to recent data that showed inflation starting to tick back upward after falling from last summer.
More Time Needed To Separate ‘Signal’ From ‘Noise’
After surging to more than 9% in June 2022, inflation has dropped since then, though at 3.3%, it is still above the Federal Reserve’s target of 2%. The persistent inflation prompted Federal Reserve Chair Jerome Powell to indicate that more interest rate increases may eventually be necessary.
Collins said recent information showed that interest rate hikes the Fed began implementing still haven’t caught up to the market, arguing that the “lag” of the effects of the hikes will take longer given that they were raised while the economy was strong. And while inflation has slowed, Collins said the decline of core inflation raised worries, as it tended to be a better guide to future inflation trends.
Economic growth has continued to keep demand for goods and services strong relative to supply, helping to keep up inflationary pressures, Collins said. However, she said expects growth to slow by the end of this year and throughout 2024.
“Patience will give us time to better separate ‘signal’ from ‘noise’ as we assess available data; and to balance risks as the effects of tighter policy continue to work through the economy,” Collins said.
Collins’ remarks come as more Federal Reserve officials are scheduled to speak this week, including Dallas Fed President Lorie Logan, Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, New York Fed President John Williams, and Chicago Fed President Austan Goolsbee.
Also Wednesday, the Federal Reserve will release its Beige Book summary of economic conditions at 2 p.m. ET, giving insight into some of the data the Fed will assess before its September meeting.