Fed's Collins Backs Steady, Gradual Path of Rate Hikes

Federal Reserve Bank of Boston President Susan Collins said on Saturday that a steady pace of modest interest rate increases is the better way for the US central bank to manage economic uncertainty, Reuters reported. She made the remarks to reporters at a conference on housing issues hosted by her bank in Boston.

“A steady, gradual path seems appropriate to me at the moment,” Collins said, adding that she remains open-minded. She noted that her expectation of gradual moves does not necessarily imply a particular cadence of increases.

Two-sided risks

Collins described the risks to the real economy as two-sided. According to the report, she pointed to inflation that is high and broadening, alongside a job market that is stable and has the potential to pick up speed. She also flagged the continuing risk of further economic shocks.

She added that the rise in medium- to longer-term borrowing costs since the start of the year could restrain demand more than she currently expects. Reuters said these factors argue against a more aggressive pace of tightening to contain inflation, which has overshot the Fed’s 2% target for more than five years.

Rate path may run higher

Collins said the incoming data of recent months has shifted where the Fed could end up in its current tightening cycle. She cited price data from the past three months and a labour market on stronger footing as reasons the path of policy rates over the next year might be somewhat higher than she had thought a couple of months ago.

The Fed’s benchmark rate target currently stands in a range of 3.75% to 4%, and the central bank last raised rates in September, according to the report.

Her comments came a day after San Francisco Fed President Mary Daly said rates will likely need to rise, Investing.com reported. Speaking at a University of Nevada, Las Vegas economic forecast event, Daly said services inflation excluding housing was “not moving in the correct direction” and that it was hard to say policy is restrictive enough at current levels.

Daly also said consumer spending had been surprisingly resilient, while noting she was starting to hear that consumers may be running out of steam. She said producers were considering passing higher costs on to consumers.

What’s next

A quarter-point increase is widely expected at the Fed’s December 8-9 policy meeting, followed by another hike in January, Reuters reported. The report added that last week’s price data and comments from Fed Governor Christopher Waller suggest some officials may favour a larger move next month, although most policymakers have signalled support for steady, small increases that give the economy time to adjust to higher borrowing costs.

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