Federal Reserve Bank of Boston President Susan Collins said she favored holding interest rates steady amid still-strong growth that could slow or stall progress on cooling inflation.
“It will likely be appropriate to keep policy rates at the current level for some time to balance the inflation and employment risks in this highly uncertain environment,” Collins said Wednesday in prepared remarks for the bank’s annual regional banking conference.
The Boston Fed chief, who votes on policy this year, said last month’s rate cut — the second in a row — was “prudent” in order to support a labor market where hiring has weakened. She said the Fed’s policy rate, currently in a range of 3.75-4 percent, remains “mildly restrictive,” which is appropriate given that inflation remains above the Fed’s 2 percent target.
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A growing number of Fed officials have signaled they won’t favor cutting rates again imminently, including Atlanta Fed President Raphael Bostic. Earlier Wednesday he said inflation remained the clearer risk to the US economy.
While market participants had expected a third straight reduction at the central bank’s December meeting, those bets have diminished since Chair Jerome Powell warned investors that another cut was not guaranteed in December.
This year’s half percentage point of cuts follows a full percentage point delivered in the closing months of 2024. Interest rates are now at or near where some policymakers judge the neutral rate — which neither stimulates nor weighs on the economy — to be.
Collins said resilient demand from households and businesses tempered an expected slowdown in economic activity from higher tariffs. Trade policy, and its ultimate impact on prices, is still uncertain, she said, and financial conditions give a tailwind to growth.
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“Against this backdrop, providing additional monetary support to economic activity runs the risk of slowing — or possibly even stalling — the return of inflation to target,” Collins said.
She added the downside risks to hiring don’t seem to have increased further since the summer and the unemployment rate, which she expects to rise a bit more, is still relatively low.
“This suggests that the labor market remains roughly in balance, though an unusual one with low net hiring that bears watching,” Collins said.