Federal Reserve Bank of Boston President Susan Collins agreed with FOMC dissenters over statement
Collins is not a voter this year on the rate-setting Federal Open Market Committee. But her view on the statement language highlights an ongoing shift on the FOMC away from any consideration of a rate cut in the near future. Her comments show Collins is among a growing number of officials who would also like the Fed to signal more clearly that the next move could be either a cut or a hike.
That dynamic will make it more difficult for Kevin Warsh, President Trump’s nominee to lead the Fed, to pursue rate cuts once he’s confirmed by the US Senate in the coming weeks. Warsh is expected to be at the helm when Fed policymakers gather for their next meeting, June 16-17.
In an interview on Bloomberg Television Thursday, San Francisco Fed President Mary Daly signaled she she didn’t stand with the dissenters as she downplayed the division on the committee over the statement.
“I think the phrasing of the statement is less important than the actions” of the Fed’s rate-setting committee, Daly said. “The real signal about the meeting is that everyone agreed to the decision” to hold rates steady.
Collins, in a wide-ranging discussion at the Boston Fed’s headquarters, said she favors a more “agnostic” stance around the future path for rates as the energy shock caused by the Middle East conflict pushes back the Fed’s ability to reach its 2 percent inflation target.
Interest rates are likely to remain on hold “for a longer time period, with further easing further down the road,” she said. Yet, the Fed might also have to consider an increase under certain circumstances.
“I do think that there are scenarios in which it would be important to strongly consider a hike,” Collins said, though she emphasized that’s not her baseline expectation.
Collins has long favored a “patient” approach to monetary policy, at times voicing hesitancy over cutting interest rates last fall. Her concerns over price pressures have only grown, she said, as the Fed’s preferred gauge of inflation rose to 3.5 percent in March, with gasoline prices jumping to their highest levels since 2022.
“It’s more the persistence of inflation that I’m focused on,” Collins said, adding that supply-chain disruptions could cause price increases to spread beyond energy to food as global spillovers from the war continue.
Interest rates should stay at current “mildly restrictive” levels, she added. “But if the inflation trajectory looked like it was significantly moving in the wrong direction” policymakers would “need to reassess what the appropriate policy would be.”
Collins said her “modal scenario” — the most likely — sees inflation accelerating in coming months to slightly above 3.5 percent before easing to near 3 percent by year-end.
But as the war on Iran has dragged on, the probability of alternative scenarios with “more severe repercussions” has increased, she said. The imposition of new tariffs are some levies were blocked by the Supreme Court could also add upward pressure.
On the other side of the Fed’s dual mandate, the April employment report due Friday is expected to show a slowdown in payrolls growth, while the unemployment rate likely was unchanged at 4.3 percent, based on economists’ forecasts.
The labor market has shown signs of an “unusual balance” with low unemployment but low rates of hiring, Collins said. Still, she noted, demand remained resilient amid strong consumer spending.
But inflation remains Collins’s main focus.
“One of the reasons I’m very concerned about inflation is recognizing the impact it has on people’s lives,” she said. “Price levels are very high.”
Taming high inflation would allow the Fed to deliver a more vibrant economy that works for all, just as the labor market shows signs of stabilization, Collins said. That’s a message she shared with real estate and education professionals during a daylong visit through Rhode Island on Wednesday.
Much of the feedback she heard touched on rising costs across the economy, and a shifting labor market where artificial intelligence is scrapping entry-level positions for recent graduates. Unemployment in Rhode Island is running slightly higher than the national rate of 4.3 percent.
Companies in the housing market also pointed to signs of a two-tiered economy, as developers look to maximize profits by concentrating on luxury buildings. At the same time, employers pointed to the lack of affordable housing as a barrier to attracting and retaining workers across the state.
“I see both areas thriving and we heard about some of the areas that are struggling and that have a less positive outlook,” Collins said. “That’s something that we take seriously.”
With assistance from Marie Monteleone, Catarina Saraiva and Jonnelle Marte.