Federal Reserve Bank of Boston President Susan Collins said policymakers should not take further tightening off the table despite welcome progress on inflation.
“In order to get back down to 2% in a reasonable amount of time we need to be patient and resolute, and I wouldn’t take additional firming off the table,” Collins said Friday on CNBC. “We need to really stay the course.”
Late Friday, she told reporters that among the factors she’s watching to determine whether further tightening would be needed are inflation expectations. Those are in a “reasonably well anchored” range now, but bear watching, she said.
Policymakers are trying to decide if they need to raise interest rates further to ensure inflation will come down to 2% or if their previous moves, combined with a recent rise in long-term Treasury yields, will be sufficient. They left their benchmark rate steady this month in a target range of 5.25% to 5.5%, a 22-year high.
An update to the consumer price index released Tuesday showed US inflation broadly slowed in October, which investors interpreted as a strong indication that the Fed is done hiking rates.
“There has been some promising evidence of inflation coming down,” Collins said. At the same time, core inflation, which excludes volatile food and energy costs, has run around 3.4% over the past three months, showing that “we have a ways to go.”
Collins said that while goods prices have moderated significantly and there’s been “some” moderation in shelter costs, progress on prices of core services excluding housing hasn’t been as great as she had hoped.
The Boston Fed chief also said she is seeing some evidence that restrictive interest rates are helping to realign supply and demand in the economy. But she pointed out that long-term Treasury yields have come down a bit since the Fed’s last policy meeting.
Collins said that her “baseline” is that Fed policy will need to stay restrictive “for some time.” Policymakers will meet next on Dec. 12 and 13.
“Data is so noisy right now, and the progress that we’ve seen has been pretty uneven,” she said. “I think we’re positioned to be patient.”
Separately on Friday, other policymakers echoed the idea that the Fed will remain focused on returning inflation to 2%, despite recent signs of progress.
“I wouldn’t want to declare victory on either our inflation battle or get overly optimistic about what kind of disruptions in the economy there will be,” San Francisco Fed chief Mary Daly said at a conference in Frankfurt, Germany.
“We have to continue our hard work and make sure that we get there as softly as possible, as gently as possible,” Daly added, without commenting directly on the outlook for interest rates.
Fed Vice Chair for Supervision Michael Barr repeated his view that rates are “at or near” the level needed to return inflation to the Fed’s target.
“I think the recent economic readings reinforce my view that that is probably correct,” he said during a moderated discussion with Bloomberg’s Tracy Alloway and Joe Weisenthal in New York.
--With assistance from Alexander Weber and Catarina Saraiva.
(Updates with further comments from Collins, starting in third paragraph.)
