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

Federal Reserve Bank of Boston President Susan Collins advocated for gradual and modest interest rate hikes during a conference on housing issues in Boston. Collins believed that a steady pace of increases would better manage economic uncertainties. She acknowledged the risks to the economy, such as high inflation and widening gains, alongside a stable job market with the potential for acceleration.

Collins also noted that the recent rise in medium to long-term rates could further restrain economic activity. For now, she felt that the Fed should not adopt a more aggressive pace of rate increases to control inflation that has exceeded the 2.0 percent target for over five years. The last rate hike occurred in September, and the Fed is expected to raise its interest rate target range from 3.75 percent to 4.0 percent at the December 8-9 monetary policy meeting.

Some officials have suggested a bigger increase at the upcoming meeting, but Collins favored a more measured approach, allowing the economy time to adjust to higher borrowing costs. Collins did not specify a particular pace of rate increases, emphasizing that her expectation for gradual changes did not mean a specific cadence. She also noted that recent data had shifted her view on the Fed's current tightening cycle, suggesting a higher path of policy rates over the next year compared to a couple of months ago.