Fed’s Collins says gradual rate hikes best to manage economic risks

Fed’s Collins advocates for gradual rate hikes to navigate economic risks

Federal Reserve Bank of Boston President Susan Collins endorsed a measured approach to raising interest rates on Saturday, arguing that a gradual, steady path is the best way to manage economic uncertainties. When asked about tightening monetary policy, Collins expressed her current preference for a gradual approach. However, she noted that she remains open to alternative views.

"I do see the risks as two-sided on the real side of the economy," Collins said, highlighting the widening impact of inflation and the stable, potentially accelerating job market. At the same time, she acknowledged ongoing risks of further economic shocks and the possibility that recent increases in medium to long-term rates may dampen demand more than initially anticipated.

For now, Collins believes these factors argue against the Fed adopting a more aggressive pace of rate hikes to combat inflation, which has remained above the Fed's 2% target for over five years. The Fed last increased rates in September and is expected to raise the 3.75% target range by a quarter percentage point at their December 8-9 meeting, with another hike possible in January.

While most Fed officials support steady and small increases to curb inflation, some, like Governor Christopher Waller, have suggested a larger increase at the upcoming meeting. Collins cautioned that her expectation for a gradual approach does not necessarily imply a specific pace. She reiterated that recent data has shifted her view of where the Fed might end up in its current tightening cycle.

"I do think that the price data we’ve seen over the past three months — and the labor market on a stronger footing — does make me think that the path of policy rates over the next year might be a bit higher than I had thought a couple of months ago," Collins explained.