Boston Federal Reserve President Susan Collins on Wednesday recommended a methodical strategy with respect to policymaking. Nevertheless, she pointed out that if the upsurge in inflation details turns out to be short-lived, "additional tightening could be needed."
Boston Federal Reserve President Susan Collins Wednesday voiced support for a careful approach to policymaking and signaled she needs additional data to be persuaded that inflation has been reined in. Remarks from Collins mirrored those of other major central bankers, with her noting the Federal Reserve may be close to or even at the peak for interest rates yet cautioning more hikes may be necessary depending on how the figures pan out.
"In the present uncertain economic environment, it appears prudent to remain resolute and data-dependent, enabling flexibility to make adjustments as conditions necessitate," Collins stated in prepared remarks at a Boston occasion. This was in line with Powell and Waller's recent comments, who, while favoring a cautious route, highlighted their wariness of recent inflationary movements and willingness to introduce additional rate hikes if called for.
In a Tuesday CNBC talk, Waller said the Fed can "move gradually" on policy and mentioned the bank had "experienced two disappointments" in recent years when it came to inflation that had appeared to be cooling but then took a different direction.
In her speech, Collins mentioned some encouraging developments on inflation, accounting the Fed's preferred index for a 0.2% rise in July together with slowed wage growth. Still, she cautioned "it is difficult to unravel the message from the data." If the improvement isn’t lasting, "additional tightening may be essential," she added.
"Despite promising indicators, given the continued strength of demand, I reckon it is too soon to assume that inflation is on an irreversible course back to the 2% target," the FOMC non-voting member for 2020 noted.
Discussing the usual lags associated with Fed policy, Collins suggested that owing to the Covid-19 environment and healthy household and corporate balance sheets, these delays may be extended, prompting more prudence in policy.
"The intention is a planned slowdown that ensures demand matches supply, a factor essential to confirm inflation is heading to the target," the Boston Fed President asserted.
Data from CME Group suggests that the Federal Reserve is very likely to abstain from hiking rates at its September 19-20 meeting, while traders suggest a 43% chance of one last increase at the October 31-November 1 gathering.
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